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http://www.archive.org/details/costcapitalizatiOOthomrich 


COST 
CAPITALIZATIOiy 


AND 


ESTIMATED  YALUE 


OF 


AMERICAN  RAILWAYS 


AN  ANALYSIS  OF  CURRENT  FALLACIES 


SLASON  THOMPSON 
BUREAU  OF  RAILWAY  NEWS 


THIRD  EDITION 


Chicago: 

Gunthorp-Warren  Printing  Company 

1908 


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NOTE. 

Except  as  they  present  facts  and  legitimate  deduc- 
tions, no  authoritative  value  is  claimed  for  these  pages. 
Neither  is  any  railway  official  or  organization  responsible 
for  the  views  expressed  herein.  They  are  published  by 
the  writer  as  the  result  of  four  years'  study,  in  which  he 
has  had  time  and  opportunity  to  investigate  the  subject 
beyond  what  was  possible  in  his  many  years  of  active 
daily  journalism. 

Wherever  statements  of  fact  are  not  matters  of  com- 
mon knowledge  their  source  is  given.  From  these  facts 
only  the  most  obvious  deductions  have  been  drawn. 

S.  T. 
Chicago,  1907. 


Ififi87. 


There  can,  indeed,  be  no  doubt  that  American~rail- 
ways  are  less  over-capitalized  now  than  they  have  ever 
previously  been,  the  amount  of  profit  diverted  to  capital 
purposes  in  recent  years  having  been  on  a  truly  colossal 
scale. — London  Statist,  August  24,  1907. 


OF  THE     ^ 

UNIVERSITY 

CONCLUSIONfi  BY  WAY  OF  PREFACE 

From  the  facts  presented  in  the  following  pages  it  is  sub- 
mitted that  the  VALUE  of  railway  property  in  the  United 
States  employed  in  the  service  of  the  public  is  shown  by  several 
independent  methods  of  inquiry  to  exceed  their  total  NET 
CAPITALIZATION. 


Historically,  the  cost  is  shown  to  be  always  cumulative,  while 
the  capitalization  has  sometimes  been  scaled  down  and  millions 
of  expenditures  have  never  been  capitalized. 


!  Where  the  Net  Capitalization  in  1906  has  been  officially  de- 
clared to  be  only  $11,671,940,649,  the  cost  or  value  ascertained, 
through  several  processes,  is  approximated  as  follows: 


Construction  and  Equipment  to  June  30th,  1905,  $13,000,000,000 
(Exclusive  of  appreciation  of  right  of  way  and  terminal  rights.) 


Commercial   Value,    as   approximated  by   Prof. 

Henry  C.  Adams  as  of  June  30th,  1904 $11,244,852,000 

Applying  Prof.  Adams'  formulae  to  earnings  of 

1905 $15.235765,167 

Applying  Prof.  Adams'  formulae  to  earnings  of 

1906 $17,248,620,000 


Market  Value  as  shown  in  quotations  of  securities,  anywhere 

Erom $11,000,000,000 

To $14,000,000,000 

and  upward, 

according  as  affected  by  politics,  crops,  value  of 
money  and  manipulation. 


• 


By  Comparison  with  capitalization  of  foreign  roads 

From $13,384,240,000  (on  the  Canadian  basis) 

To $21,969,000,000  (on  the  German  basis) 

or $28,712,000,000  (on  the  French  basis) 

or $34,795,000,000  (on  the  Belgian  basis) 

or $58,644,000,000  (on  the  English  basis) 

Even  allowing  $100,000.00  per  mile  for  the  difference  in  the 
value  of  right  of  way  (the  only  feature  of  cost  greater  in  Great 
Britain),  American  Railways  capitalized  on  the  English  basis 
might  fairly  be  capitalized  at  $37,000,000,000  and  with  freight 
rates  as  charged  in  England  their  commercial  value  on  Prof. 
Adams'  theory  would  exceed  that  amount. 


On  the  basis  adopted  by  Japan  in  the  purchase  of  private  roads 
of  Japan,  in  1906,  the  value  of  American  Railways  on  the  aver- 
age business  of  1904,  1905  and  1906  would  be,  over  $14,505,000,- 
000. 


Capitalized  according  to  the  price  paid  by  Japan  for  the  in- 
ferior railways  of  Japan,  the  value  of  American  Railways  would 
be  nearly    $16,000,000,000 

And  finally: 

On  the  ratio  of  assessed  value  to  the  true  value  of  all  property 
in  the  United  States,  as  reported  by  the  Federal  Census  Bureau, 
the  assessment  of  American  Railways  for  the  purposes  of  taxa- 
tion is  a  certificate  of  value  for  $12,890,000,000,  or  over  a  billion 
dollars  more  than  their  Net  Capitalization. 


INTBODUCTION 


Whj  Official  Valuation  of  Railway  Property  is  Desirable 

In  numerous  official  and  unofficial  utterances,  President 
Roosevelt  has  made  it  clear  that  he  has  lent  a  more  or  less 
complaisant  ear  to  the  theorists  and  agitators  who  for  many 
years  have  been  clamoring  for  government  valuation  of  the 
property  of  the  railways  of  the  United  States  represented  by 
their  stocks  and  bonds.  This  clamor  was  put  in  concrete  shape 
in  the  amendment  to  the  Hepburn  Act  introduced  by  Senator 
La  Follette,  which  reads : 

"That  the  Commission  shall  estimate  and  ascertain  the  fair 
7alue  of  the  property  of  every  railroad  engaged  in  interstate 
commerce,  aS  defined  in  this  act,  and  used  by  it  for  the  con- 
venience of  the  public." 

That  the  demand  thus  formulated  was  not  original  with  the 
senator  from  Wisconsin  is  proven  by  the  discussion  of  its 
practicability  by  Professor  Henry  C.  Adams  in  his  first  report 
as  Statistician  to  the  Interstate  Commerce  Commission  for  the 
year  ending  June  30,  1888.  In  this  he  asked:  "Is  it  possible 
to  discover  the  cost  and  value  of  the  carrier's  property,  fran- 
chises and  equipment?"  And  while  he  was  of  opinion  that  such 
a  task  was  a  "prodigious,"  if  not  an  impossible  one,  he  thought 
that  a  trustworthy  estimate  of  the  relation  existing  between 
"the  present  worth  of  railroad  property  and  its  cost  to  those 
who  are  proprietors  of  it"  might  be  obtained.  He  also  thought 
that  "the  estimate  of  social  agitators  on  the  one  hand  and  of 
men  interested  in  the  present  status  on  the  other  might  be 
far  from  the  truth." 

The  idea  present  in  the  mind  of  Statistician,  Senator  and 
President  is,  and  always  has  been,  that  the  cost  or  capital  of 
railways  exercised  a  controlling  influence  on  rates.  In  other 
words  that  the  falsely  alleged  "exorbitant  rates"  on  American 
railways  were  due  to  the  necessity  of  paying  interest  and  divi- 
dends on  gross  over-capitalization. 


It  has  gone  for  naught  with  the  ''social  agitators,"  back  of 
this  contention,  that  the  rates  on  American  railways  are  not 
exorbitant,  being  the  lowest  in  the  world.  Neither  have  they 
been  able  to  grasp  the  truth  that  rates  are  not  fixed  by  divi- 
dends, because  they  close  their  understanding  absolutely  to  the 
mute  immutable  testimony  of  such  figures  as  the  following, 
showing  that  while  gross  railway  capitalization  per  mile  has 
steadily  increased  during  the  period  of  Mr.  Adams'  incumbency 
of  his  present  office,  the  tendency  of  average  rates  has,  almost 
invariably,  been  downward: 


Gross  Capital  and  Average  Receipts  Per  Mile,  1888-1906. 


Year. 

Gross  Railway 
Capital 
per  Mile. 

Passenger 
Receipts  per 

Passenger 
Mile  (Cents). 

Freight 

Receipts  per 

Ton  Mile 

(Cents). 

1888 

$56,498 
56,892 
58,659 
59,006 
61,130 
59,729 
59,419 
59,650 
59,610 
59,620 
60,343 
60,556 
61,490 
61,531 
62.301 
63,186 
64,265 
65,926 
67,936 

2.349 
2.165 
2.142 
2.128 
2.108 
2.111 
1.986 
2.040 
2.019 
2.022 
1.973 
1.978 
2.003 
2.013 
1.986 
2.006 
2.006 
1.962 
2.002 

1  001 

1889. 

922 

1890 

941 

1891 

895 

1892 

898 

1893 

879 

1894 

.860 

1895 

839 

1896 

806 

1897 

798 

1898 

.753 

1899 

724 

1900 

729 

1901. 

750 

1902 

757 

1903 

1904 

.763 
780 

1905 

766 

1906 

.748 

Here  is  an  official  demonstration  that  while  the  capitalization 
of  American  railways  increased  $11,438  per  mile  between  1888 
and  1906  their  average  passenger  receipts  per  mile  declined  more 
than  a  third  of  a  cent,  and  their  freight  earnings  per  ton  were 
less  by  over  a  quarter  of  a  cent  per  mile. 

President  Roosevelt  and  Senator  La  Follette  and  Professor 
Adams  and  all  intelligent  students  of  railway  affairs  understand 
the  significance  of  these  figures,  but  the  "social  agitators"  dwell 
upon  the  increase  of  capital  and  never  tell  their  deluded  fol- 
lowers that  a  reduction   of  one-third  of  a  cent  per  passenger 


mile  on  the  traffic  of  1906  meant  a  saving  of  $87,000,000  to  the 
traveling  public,  while  a*"decline  of  2.53  mills  in  the  rate  per  ton 
mile  meant  a  loss  to  the  railways  of  $545>974'000  on  the  freight 
traffic  of  1906. 

These  two  items  make  a  total  greater  by  $138,000,000  than  the 
aggregate  of  interest  and  net  dividends  paid  by  the  railways 
in  1905.  In  other  words  the  possible  net  profits  of  the  railways 
in  1906  were  practically  cut  in  two  by  the  decline  in  passenger 
and  freight  rates  between  1888  and  1906. 

Any  relation  between  capitalization  and  rates  such  as  is 
harped  on  by  the  "social  agitators"  is  thus  demonstrated  to  be 
an  iridescent  bubble  proceeding  from  more  "water"  on  the  brain 
than  there  is  in  all  the  railways  in  the  universe. 


The  prevalence  of  such  popular  hallucinations,  however, 
emphasizes  the  necessity  for  an  intelligent  attempt  on  the  part 
of  the  government  to  ascertain  and  publish  to  the  world  a 
reasonably  trustworthy  estimate  of  the  cost  and  true  valuation 
of  the  railways  of  the  United  States.  The  right  to  regulate 
carries  with  it  the  duty  to  protect.  This  was  recognized  in 
the  passage  of  the  original  Act  to  Regulate  Commerce  and  by 
the  first  Commissioners  appointed  under  that  act.  In  its  first 
report  written  by  the  late  Judge  Thomas  M.  Cooley,  than  whom 
no  higher  authority  ever  wrote  on  railway  subjects,  the  Com- 
mission says: 

"The  act  to  regulate  commerce  was  not  passed  to  injure  any 
interests,  but  to  conserve  and  protect.  It  had  for  its  object 
to  regulate  a  vast  business  according  to  the  requirements  of 
justice." 

The  power  to  decree  reasonable  rates  carries  with  it  the  duty 
to  preserve  the  property  of  the  railways  from  confiscation  or 
unreasonable  rates,  and  the  Supreme  Court  of  the  United  States 
has  declared  that  a  railway  company  "is  entitled  to  ask  a  fair 
return  upon  the  value  of  that  which  it  employs  for  the  public 
convenience."     Furthermore,  it  has  decided  that: 

"In  order  to  ascertain  that  value,  the  original  cost  of  con- 
struction,  the   amount   expended   in   permanent   improvements, 


6 

the  amount  and  market  value  of  its  bonds  and  stock,  the  present 
as  compared  with  the  original  cost  of  construction,  the  proba- 
ble earning  capacity  of  the  property  under  particular  rates  pre- 
scribed by  statute,  and  the  sum  required  to  meet  operating  ex- 
penses, are  all  matters  for  consideration,  and  are  to  be  given 
such  weight  as  may  be  just  and  right  in  each  case." 

If  it  were  established  once  for  all,  under  the  stamp  of  an 
impartial  investigation,  that  the  ascertained  value  of  the  rail- 
ways after  due  consideration  of  these  elements  was  equal  to  or 
exceeded  the  sum  of  their  stocks  and  bonds,  very  much  of 
the  popular  hostility  to  their  management  would  disappear. 
Such  hostility  is  undoubtedly  fanned  into  radical  demands  for 
restrictive  and  oppressive  legislation  by  the  reiterated  charges 
that  extortionate  rates  are  imposed  in  order  to  pay  profits  on 
excessive  capitalization.  Nothing  short  of  a  thorough  govern- 
mental investigation  of  the  cost  and  value  of  the  property  used 
for  its  convenience  will  satisfy  the  public  who  are  right,  the 
''social  agitators"  or  the  hundreds  of  thousands  of  American 
citizens  who  have  invested  billions  in  American  railways. 

Unless  it  can  be  shown,  that  the  cost  or  present  value  of 
the  railways  approaches  their  capitalization,  the  crusade  of  the 
"social  agitators"  will  continue  to  attract  followers  by  confusing 
cries  of  "water"  and  "over-capitalization"  in  one  breath  and 
"exorbitant  rates"  and  "discrimination"  in  another.  This  too 
in  spite  of  the  testimony  of  such  an  unprejudiced  expert  as 
Chairman  Martin  A.  Knapp  of  the  Interstate  Commerce  Com- 
mission, who  as  long  ago  as  1899  testified  before  the  Industrial 
Commission   as   follows : 

"I  have  not  seen  any  instances  in  which  the  rates  have  seemed 
to  much  depend  upon  or  be  influenced  by  the  capitalization  of 
a  road. 

"Q.     You  have  never  seen  such  a  case? 

"A.  I  have  not.  The  capitalization  of  the  railroad,  I  think, 
cuts  no  figure  in  this  rate  question." 

This  from  a  firm  believer  in  the  principle  that  "a  fair  valua- 
tion on  the  railroad  properties"  is  an  essential  basis  for  a  judi- 
cial determination  of  what  the  proper  rate  should  be,  would 
seem  to  be  conclusive. 


It  is  therefore  as  a  measure  to  protect  their  rights  in  any 
judicial  investigation  into  their  rates,  that  I  would  recommend 
to  the  railways  that  instead  of  opposing  they  should  insist  upon 
an  official  valuation  of  their  properties.  Such  a  valuation  by 
an  intelligent  and  fair-minded  commission,  would,  in  my 
opinion,  result  in  a  convincing  demonstration  that  American 
railways,  as  a  whole,  are  under-capitalized,  and  that  all  the 
"water"  that  from  time  to  time  has  been  present  in  their  stocks 
has  been  absorbed  by  the  cost  of  improvements,  plowed  back, 
as  the  farmers  say,  into  them  from  operating  expenses  and  net 
earnings. 

Given  such  a  Commission  as  that  named  by  Governor  La 
Follette  himself,  which  has  recently  made  a  report  on 
passenger  rates  in  Wisconsin,  remarkable  for  its  compre- 
hensive thoroughness  and  judicial  fairness,  and  the  railways  have 
nothing  to  fear  but  much  to  gain  by  supporting  Senator  La  Fol- 
lette's  proposition,  so  far  as  it  relates  to  the  valuation  of  their 
properties.  If  there  ever  was  a  case  of  a  man  smitten  dumb 
by  a  granted  prayer,  it  would  be  the  Senator  from  Wisconsin 
by  the  report  of  any  commission  capable  of  making  a  reasona- 
bly adequate  and  just  valuation  of  railway  properties  in  the 
United  States. 

The  only  thing  the  railways  have  to  fear  is  the  appointment 
of  prejudiced  or  incapable  appraisers. 


It  is  the  purpose  of  the  present  writer  to  anticipate,  so  far 
as  may  be,  the  findings  of  such  an  official  body,  conceding 
at  the  outset  that  anything  like  an  authoritative  valuation  of 
railway  property  is  beyond  the  reach  of  his  expectancy.  Even 
the  government  with  all  its  resources  and  inquisitorial  powers 
can  never  arrive  at  a  definitive  conclusion  of  what  has  been 
well  called  a  "superhuman  task." 

The  difficulties  confronting  such  an  undertaking  ^re  practi- 
cally insuperable.  That  of  numbering  the  stars  deals  with 
more  tangible  units.  As  the  Railway  and  Warehouse  Commis- 
sion of  Minnesota,  which  has  essayed  the  task  for  a  single  state, 
admits,  it  involves  "the  closest  personal  examination  of  all  the 


8 

physical  properties  of  each  company  doing  business  in  this 
state."  Moreover  those  entrusted  with  it  must  be  (to  quote 
from  the  same  authority)  "Men  of  wide  experience,  who  thor- 
oughly understand  the  business  in  all  its  details,  and  who  know 
the  values  of  everything  which  enters  Jnto  the  problem,  from 
the  right  of  way  to  the  completed  road,  with  all  its  necessary 
equipment.  As  every  line  has  its  own  physical  obstacles  to 
overcome  and  the  necessary  conditions  of  efficiency  and  the 
necessary  equipment  in  each  case  involves  nearlj  every  cir- 
cumstance affecting  the  business,  such  work  cannot  be  hurriedly 
or  superficially  done  without  complete  sacrifice  of  the  value 
and  usefulness  of  the  work  as  evidence." 

Then  the  Commission  enumerates  a  few  of  the  items  com- 
prised in  its  investigation  as  follows: 

"The  detailed  examination  into  the  present  value  of  lands 
for  right  of  way,  yards  and  terminals ;  the  cost  of  tracks,  bridges, 
buildings,  shops,  machinery  and  tools,  engine-houses  and  turn- 
tables, locomotives,  freight  and  passenger  cars,  in  fact,  every 
item  that  enters  into  the  physical  property  of  the  railroads  of 
the  state." 

It  must  be  evident  that  when  the  value  of  all  these  things 
have  been'  estimated — they  cannot  possibly  be  ascertained — 
there  remain  the  intangible  rights  and  opportunities  to  be 
guessed. 

What  this  may  amount  to  can  be  "guessed"  from  the  fact 
that  the  Tax  Commission  of  Texas  in  1906  valued  the  intangi- 
ble properties  of  the  railways  of  that  state  at  $152,827,760 
after  deducting  $188,600,939,  the  value  of  their  physical  property 
fixed  by  the  Railroad  Commission,  "from  the  true  cash  value 
of  all  the  property  of  said  companies"  in  Texas. 

No  guess  based  on  earnings  can  be  admitted,  being  precluded 
by  the  purpose  of  the  inquiry  to  find  "a  safe  foundation  upon 
which  to  construct  fair  and  reasonable  rates,"  for  the  rates  are 
themselves  the  determining  factor  in  the  earnings. 

Nothing  short  of  omniscience  can  know  or  find  out  what  the 
State  of  Minnesota  has  undertaken  in  the  premises. 

Manifestly,  therefore,  nothing  absolutely  conclusive  will  be 
attempted  or   should  be   expected   in   these   pages.     But   it  is 


9 

believed  that  by  applying  various  tests  with  candor  and  com- 
mon sense  a  more  or  less  convincing  estimate  of  the  present 
value  of  railway  property  in  the  United  States,  as  a  whole,  may 
be  arrived  at.  Statistics  will  be  used  only  to  aid  ordinary  in- 
telligence to   reach  a  sane   conclusion. 


To  begin  with,  comparison  will  be  invited  to  measure  the 
cost  and  capitalization  of  American  railways  by  that  of  foreign 
railways.  This  test  involves  a  very  simple  process  and  would 
be  of  great  assistance  if  the  physical  and  financial  conditions  of 
railway  construction  aud  the  necessities  of  traffic  in  different 
countries  could  be  reduced  to  a  common  basis  for  comparisons. 
Unfortunately  this  is  impossible  and  therefore  comparison,  "the 
right  hand  of  logic,"  will  only  be  appealed  to  to  throw  a  side- 
light on  the  subject. 

Next  there  is  the  historical  method  of  investigation.  This 
will  trace  the  making  of  American  railways  from  the  small  be- 
ginnings three-quarters  of  a  century  ago  and  their  gradual  evo- 
lution from  the  twenty-three  miles  of  horse  power  railways  in 
1830  to  the  317,083  miles  of  all  kinds  of  track  in  1906.  Done 
with  any  approach  to  exhaustiveness  this  would  require  as 
many  volumes  as  the  "Messages  and  Papers  of  the  Presidents," 
which  will  never  be  brought  up  to  date.  But  no  commensurate 
estimate  of  the  cost  and  value  of  American  railways  can  be  made 
without  at  least  a  cursory  review  of  the  trackless  task  that  con- 
fronted them,  and  the  various  stages  of  their  development. 
"The  Winning  of  the  West"  by  the  voyageur  and  pack  train 
has  no  more  stirring  stories  of  courage,  adventure  and  indomita^ 
ble  energy  than  can  be  found  in  the  final  conquest  of  this 
continent  by  the  surveying  parties,  construction  gangs  and 
steam  horses  of  railway  history.  And  all  along  the  trail  of 
almost  incredible  achievement  there  has  been  one  continuous 
chorus  of  pessimism  and  detraction.  Criticism  and  speculation 
between  them  have  made  the  construction  of  American  railways 
an  undertaking  beset  with  quicksands  and  whirlpools.  The 
history  of  railway  construction  as  written  in  Wall  Street  has 


10 

been  one  thing;  its  history  in  the  field,  from  the  driving  of 
the  first  spike  by  one  of  the  signers  of  the  Declaration  of  Inde- 
pendence,  down  to  the  present  day,  has   been  another. 

Unfortunately,  the  financiering  of  railway  companies  has 
received  more  attention  in  public  prints  than  the  details  of  the 
expenditures  involved  in  making  the  railways  themselves.  Coups 
in  Wall  Street  by  which  the  control  over  the  properties  was 
seized  or  shifted,  have  obscured  the  unsensational  progress  by 
which  those  properties  were  steadily  and  often  stealthily  trans- 
formed from  the  "strap  rail"  period  to  vast  transportation  sys- 
tems of  today.  And  so  we  are  left  to  guess  what  this  transfor- 
mation cost,  and  are  forced  to  piece  out  any  information  we 
have  of  original  cost  by  an  inquiry  into  what  it  would  cost  to 
produce  existing  railways  at  present  prices.  Thousands  and 
millions  of  dollars  have  gone  into  the  making  of  the  railways 
of  America  which  is  represented  in  the  properties  but  not  in 
the  capitalization  of  present  companies.  Panics,  abandonments 
and  reorganizations  have  dealt  cruelly  with  the  investments 
of  thousands  who  put  their  faith  in  the  alluring  railway  pros- 
pectuses of  the  past.  The  public  has  been  the  only  invariable 
winner  throughout  the  record  of  experiments,  wrecks  and  re- 
ceiverships that  mark  the  financial  history  of  American  rail- 
ways. It  has  been  truly  said  that  no  matter  how  unprofitable 
any  particular  undertaking  has  been  to  its  owners,  no  American 
railway  has  failed  to  bring  profit,  sometimes  ten  fold,  to  the 
community  it  served.  This  is  true  although  there  are  thousands 
of  miles  of  badly  located  roads  in  the  union  which  never  should 
have  been  built  where  they  were  first  surveyed.  Once  built, 
however,  the  investment  in  them  has  been  irrevocable,  and  the 
years  come  and  go  without  bringing  the  balsam  of  dividends  to 
cure  the  original  mistake. 


It  is  the  futility  of  attempting  to  get  at  the  original  cost  and 
subsequent  sums  poured  into  sustenance,  as  well  as  maintenance 
and  improvement  that  has  brought  most  economists  to  con- 
sider that  the  present  value  of  railways  can  best  be  approxi- 
mated by  the  cost  of  reproduction  at  present  prices.     The  in- 


11 

vestment  of  foresight,  energy  and  spirit  of  venture,  to  which  we 
owe  the  railways  as  much  as  to  the  actual  money  invested,  may 
be  considered  as  being  represented  by  the  increase  that  has 
come  in  the  value  of  the  right  of  way  and  terminals,  to  which 
the  railways  have  contributed  their  value. 

While  it  is  doubtful  if  the  present  cost  of  reproduction  new 
would  cover  the  original  cost  of  the  railways,  plus  the  cost 
of  reconstruction  concealed  in  yearly  and  daily  maintenance  and 
improvements  to  meet  the  ever  increasing  traffic,  it  is  generally 
admitted  that  no  other  method  would  so  nearly  and  justly  recog- 
nize all  the  elements  that  underlie  the  present  value  of  American 
railways.  And  after  the  cost  of  reproduction  is  estimated  there 
remain  other  elements  of  value  to  be  considered,  notably  that 
intangible,  illusive  thing  known  as  franchise  value.  This  is  a 
possession  of  the  railways  which  may  have  more  value  than 
their  tangible  property  and  yet  there  is  no  known  method  by 
which  that  value  can  be  estimated  with  any  approacli  to  con- 
vincing accuracy.  It  is  more  nearly  represented  in  net  earnings 
than  anywhere  else.  The  right  to  operate  over  a  favorably 
located  line  in  a  territory  of  dense  traffic  between  termini  of  in- 
creasing originating  or  distributing  potentialities,  is  the  posses- 
sion that  differentiates  successful  railways  from  the  failures. 
The  physical  attributes  are  the  mere  means  for  its  exploitation. 

Such  an  inquiry  as  this  must  include  an  estimate  of  the  com- 
mercial value  of  the  railways  as  a  system.  This  means  the 
market  estimate  of  the  property,  not  according  to  its  cost  or 
its  value  as  a  physical  proposition,  but  as  based  on  its  net 
income  and  what  is  termed  the  "strategic  significance"  of  the 
property.  In  1900  in  response  to  a  Senate  resolution  the  Inter- 
state Commerce  Commission  made  one  approximation  and  in 
1905  Statistician  Adams  of  the  Commission  made  another  ap- 
praisal for  the  Census  Bureau.  Both  of  these  are  interesting  but 
unconvincing  contributions  to  the  study  of  the  subject. 

Another  means  of  arriving  at  an  estimate  of  the  value  of 
railways  is  to  study  them  through  the  returns  of  the  different 
assessors  and  state  boards  of  equalization.  Here  they  are 
weighed  in  scales  which  have  never  been  tipped  in  the  favor 
of  the  corporations  to  any  notorious  extent.     When  it  is  con- 


12 

sidered  that  they  are  regulated  as  public  highways,  the  levying 
of  any  tax  upon  railways  is  an  anomalous  proceeding.  But  in 
the  matter  of  taxation  the  railways  are  treated  as  private  cor- 
porations and  pay  taxes  in  excess  pro  rata  of  those  paid  by  the 
tillers  of  the  soil,  the  manufacturers  and  the  merchants  whom 
they  serve  at  the  lowest  rates  on  earth. 

Through  these  various  mediums,  which  in  some  instances 
overlap  and  afford  cumulative  testimony,  it  is  thought  an  ap- 
proach may  be  made  to  a  convincing  estimate  of  the  present 
value  of  the  railways  of  the  United  States — at  least  sufficiently 
convincing  to  dissipate  from  all  reasonable  minds  the  impres- 
sion that  as  a  whole  American  railways  are  grossly  over-capital- 
ized. 

Nothing  authoritative  will  be  attempted  in  this  inquiry,  its 
only  aim  being  to  present  facts  that  will  enable  the  fair  minded 
to  arrive  at  a  mean  estimate  of  the  value  of  our  railways  that 
shall  approximate  the  truth.  This,  it  is  believed,  will  support 
the  view  of  President  Hadley  of  Yale  that  "the  effect  of  a  fair 
valuation  would  be  overwhelming  proof  of  the  reasonableness 
of  American  railway  rates  as  fixed  at  present." 


13 


A  SEVEN  BILLION  DOLLAR  ERROR 

The  Reductio  Ad  Absurdum 

In    approaching   a    subject   of   such    infinite   possibilities    for 
error,  it  is  well  at  the  outset  to  sweep  aside  the  one  obvious 
misstatement  which  from  its  bold  reiteration  may  be  regarded 
as  the  chief  corner  stone  of  the  present  agitation  against  Ameri 
can  railways. 

In  his  three-day  speech  before  the  Senate  on  April  19,  20, 
and  23,  1906,  Senator  La  F'ollette  having,  on  the  estimates  oi 
one  reckless  writer,  estimated  that  in  1903  there  was  seven 
billion  dollars  of  water  in  the  capital  of  American  roads,  took 
occasion  to  adopt  the  theories  of  another  even  less  reliable 
author  to  astound  his  hearers  with  the  statement  that  $8,000,- 
000,000  odd  of  their  capitalization  in  1904  was  entirely  ficti- 
tious. 

It  is  interesting  to  trace  how  Senator  La  Follete  worked 
himself  up  to  this  magnificent  absurdity.  In  1893  ^^-  ^^^  Oss 
of  London  published  a  work  entitled  "American  Railways  as 
Investments,"  which,  with  true  insular  abandon,  fairly  reeked 
with  charges  of  fraud,  dishonesty  and  recklessness  in  the  con- 
struction and  financiering  of  American  railways.  As  a  result 
of  Mr.  Van  Oss'  alleged  investigations,  to  quote  Senator  La 
Follette's  words,  he  arrived  at  "two  important  conclusions: 

"First,  that  the  average  amount  originally  received  in  actual 
value  for  American  railway  bonds  probably  did  not  exceed 
67  per  cent; 

"Second,  that  the  original  investor  in  American  railway  stocks 
certainly  paid  not  more,  on  the  average,  than  10  per  cent,  of 
their  face  value,  and  probably  less." 

Then  Senator  La  Follette,  accepting  these  glaring  fictions 
as  facts,  on  his  own  account  went  on  to  construct  he  following 
Eiffel  tower  of  error: 


14 

"If  an  estimate  of  the  actual  investment  on  American  rail- 
roads is  computed  on  the  basis  of  these  final  percentages  given 
by  Mr.  Van  Oss  on  the  capitalization  of  1904,  as  reported  by 
the  Interstate  Commerce  Commission,  v^e  get  the  following 
result  : 

Senator  La  Follette's  Estimate. 


Stocks,  10  per  cent  of  $6,339,899,329,  say 

Bonds,  67  per  cent  of  $6,873,225,350,  say 

Total  investment  represented  by  $13,213,124,679,  total  capital. 
Or  say 


$      65,000,000 
4,585,000,000 


$4,650,000,000 
$5,000,000,000 


"The  remaining  $8,000,000,000  odd  are  entirely  fictitious 
capitalization,  and  cannot  be  considered  in  discussion  of  rail- 
way earnings." 

Why  Senator  La  Follette  made  the  mistake  of  saying  that 
$65,000,000  was  a  round  figure  for  10  per  cent,  of  six  billion  odd, 
or  did  not  swell  his  fictitious  capitalization  to  eight  and  a  half 
billion,  as  he  well  might  by  the  showing  of  his  original  error, 
is  not  explained  in  the  context  in  the  Congressional  Record. 

That  Senator  La  Follette  was  thoroughly  possessed  and  fas- 
cinated by  the  false  estimates  cited  in  this  speech  is  proved  by 
the  following  extract  from  his  speech  of  May  18,  1906,  explain- 
ing his  vote  on  the  Hepburn  bill : 

"So  long  as  the  legislation  relative  to  the  common  carriers 
of  this  country  permits  these  corporations  to  increase  their 
capital  stock  without  limit,  increase  it  without  adding  any- 
thing of  value  to  their  properties,  and  increase  it  solely  with 
the  purpose  of  fixing  rates  upon  that  inflated  capitalization, 
in  order  to  pay  profits  and  dividends  to  those  holding  the  stocks 
and  bonds,  in  which  they  have  no  real  investments,  just  so  long 
this  question  will  be  a  vital  issue  before  the  American  people. 
There  is  today  in  the  stock  and  bond  valuation  of  the  railroads 
of  this  country  upward  of  seven  billions  of  water." 

Let  us  examine  this  fictitious  Niagara  in  the  light  of  incon- 
trovertible facts: 

According  to  the  last  statistical  report  of  the  Interstate  Com- 
merce  Commission,   the   total   railway   capital   outstanding,   in- 


15 


eluding  stocks,' bonds,  income  bonds,  equipment  trust  obliga- 
tions, and  miscellaneous  obligations  was  $14,570,421,478.  Of 
this  $2,257,175,799  stock  and  $641,305,030  bonds  was  owned  by 
the  railways  in  their  corporate  capacity  and  was  not  in  the 
hands  of  the  public,  and  in  the  language  of  the  official  statis- 
tician, "to  the  extent  that  such  reductions  are  proper,  over- 
states the  capital."  This  leaves  the  net  capital  of  the  railways 
at  $11,671,940,649. 

There  are  certain  physical  appurtenances  to  the  operation  of 
railways  which  have  a  standard  average  value,  namely,  locomo- 
tives, cars,  rails  and  ties.    They  cannot  be  bought  for  "water." 

Their  cost  as  they  stood  on  June  30,  1906,  may  be  tabulated 
thus: 

Estimated  Cost  of  Equipment,  Rails  and  Ties, 


Items, 

Cost. 

51  672  Locomotives  at  $12,000 

$    620,064,000 

42  262  Passeneer  Cars  at  $6  000  .              

253,572,000 

1  837  914  Freieht  Cars  at  $1  000 

1,837,914,000 

78  736  Work  Cars  at  $600           :             

47,241,600 

*309  218  Miles  of  Track  70-lb   Rail   at  $28  per  ton 

1,066,802,000 
445,273,000 

Ties  for  ditto   2  880  to  the  Mile  at  50  ct 

Total 

$4,270,866,000 

♦Estimated. 

This  affords  the  basis  for  the  following  demonstration  of 
the  absurdity  of  Senator  La  Follette's  claim  that  there  is  "up- 
ward of  seven  billions  of  water"  in  the  stock  and  bond  valua- 
tion of  the  railroads  of  this  country  today: 

Demonstration  of  Senator  La  Follette's  Error, 


Net  Capitalization  in  1905  (official) 

$11,671,940,649 

Cost  of  five  items  as  above. 

4,270,866,000 

Balance. 

$7,401,074,049 

SAnafnr  T.a  TTnllpttp'q  "ivat.pr" 

7  000  000,000 

$401,074,049 

Capital  available  for  all  other  construction  of  309,218  miles  of  track. .  . 

00,000,000,000 

As  it  would  cost  more  than  $30,000,000  for  spikes,  irrespec- 
tive   of   other   fastenings,    to    attach    the    rails   to   the   ties   on 


16 

309,218  miles  of  track,  and  more  than  $625,000,600  for  the  bal- 
last in  which  to  imbed  the  ties,  there  can  be  no  possible  escape 
from  the  reductio  ad  ahsurdum. 

When  one  considers  that  the  six  items  in  the  above  table 
of  cost  merely  represent  the  superstructure  and  ephemera  of 
railways  (and  not  all  of  these),  which  have  to  be  continually 
renewed  and  replaced  or  they  become  defective  or  obsolete, 
amazement  grows  at  the  magnitude  of  Senator  La  P'ollette's 
error.  Nowhere  does  the  table  include  the  real  thing — the 
location,  right  of  way,  strategic  position,  grading,  cuts,  fills, 
bridges,  tunnels,  stations,  freight  houses,  shops  and  other  prop- 
erties and  rights  that  make  the  railway  the  highway  upon 
which  the  traffic  of  a  mighty  people  moves  with  ever-increasing 
volume  and  despatch.  These  constitute  from  two-thirds  to 
three-fourths  of  the  value  of  the  property  of  the  railways  used 
for  the  service  of  the  American  public  today.  Unlike  the  items 
in  the  table,  right  of  way  and  location  of  railways  are  not 
subject  to  depreciation,  but  increase  in  value  with  each  passing 
year  with  the  increase  in  population  and  wealth  of  the  United 
States. 

It  is  well  for  the  Senator  that  the  rule  falsus  in  uno,  falsus 
in  omnibus  does  not  apply  to  all  senatorial  utterances. 


17 

II 

.WATER  IN  RAILWAY  CAPITAL 

Nothing  has  served  so  continuously  to  darken  counsel  in  re- 
gard to  American  railways  as  the  glib  charge  that  they  impose 
extortionate  rates  in  order  to  pay  dividends  on  watered  stock. 
It  flows  with  equal  fluidity  from  the  lips  of  economist,  agitator 
and  demagogue,  and  it  has  been  thus  flowing  so  long  that  it 
has  been  accepted  as  true  by  a  majority  of  the  American  peo- 
ple. In  truth,  it  has  ever  been  mostly  a  theory,  never  a  gen- 
eral condition. 

Now,  what  is  this  "water"  in  railway  capital  which  is  the 
subject   of   such   popular   opprobrium? 

Generally  speaking  it  is  used  as  a  synonym  for  fictitious  cap- 
italization— meaning  that  either  stock  or  bonds  or  both  have 
been  issued  for  which  no  equivalent  was  paid,  or  is  represented, 
and  that  the  value  of  the  property  is  not  equal  to  the  face  value 
of  these  obligations.  In  this  obvious  sense  its  use  is  noted 
in  financial  literature  early  in  the  seventies  and  it  is  first  recog- 
nized by  Webster  in  his  1879  Supplement  as  "Brokers'  Cant." 

In  the  Century  Dictionary  it  is  classed  as  "commercial  slang," 
and  is  defined  as  follows: 

"To  increase  the  nominal  capital  of  a  corporation  by  the 
issue  of  new  shares  without  a  corresponding  increase  of  actual 
capital.  Justification  for  such  a  transaction  is  usually  sought 
by  claiming  that  the  property  and  franchises  have  increased  in 
value  so  that  an  increase  of  stock  is  necessary  in  order  to  fairly 
represent  existing  capital." 

Legal  writers  define  watered  stock  as  a  security  issued  as 
fully  paid  in,  when,  in  fact,  the  whole  amount  of  the  par  value 
thereof  has  not  been  paid  in. 

Under  both  of  these  definitions  it  will  be  perceived  that 
there  may  be  legitimate  and  illegitimate  watering  of  railway 
capital.  But  the  term  has  been  so  persistently  and  oflfensively 
abused  by  critics  and  commentators,  as  well  as  detractors  of 
American  railways,  that  the  distinction  is  lost  in  popular  discus- 
sions of  the  subject.     The  public  has  been  led  to  believe  that 


18 

the  increases  in  railway  capitalization  during  the  past  thirl^y 
years  have  been  largely  fictitious;  that  they  have  been  made 
to  conceal  large  dividends  on  stock,  and  to  forestall  the  de- 
mands for  a  reduction  in  rates. 

It  matters  little  to  the  parties  whose  chief  capital  is  denuncia- 
tion of  watered  stocks  that,  water  or  no  water,  the  increase  in 
net  railway  capitalization  from  about  $7,000,000,000  to  $11,671,- 
940,649  during  the  past  twenty  years  has  been  accompanied  by 
a  reduction  of  freight  rates  from  1.04  cents  to  7.48  mills  per 
ton  mile  and  of  passenger  rates  from  2.19  cents  ta  ::.oo2  per 
passenger  mile.  They  will  continue  to  cry  "Water,  water, 
everywhere!"  in  hopes  that  the  discovery  of  a  few  cesspools 
in  railway  finance  will  convince  the  public  that  all  sources  of 
railway   capitalization   are   polluted   at   the   fountain   head. 


Senator  La  Follette  is  not  the  only  advocate  of  a  valua- 
tion of  American  railways  who  professes  to  think  that  they 
are  floating  islands  surrounded  by  oceans  of  water.  Only  last 
winter  the  Washington  correspondent  of  one  of  our  great  dailies 
wrote  to  his  paper  that: 

"Every  development  of  late  shows  that  most  of  the  big  lines 
of  railroads  in  the  United  States  are  vastly  over-capitalized, 
some  of  them  having  a  funded  debt  and  capital  stock  issues 
amounting  to  from  two  to  ten  times  their  actual  cost." 

The  point  of  this  watery  delusion  was  put  thus:  "It  is  easy 
to  see  that  if  a  railroad  has  been  capitalized  at  a  figure  five  or 
ten  times  its  value  it  must  meet  a  fixed  charge  five  or  ten  times 
as  great  as  it  should  be  expected  to  meet." 

It  will  be  observed  that  "actual  cost"  and  "value"  are  here 
used  as  interchangeable  terms  and  the  illegitimate  water  in 
most  of  the  big  lines  was  said  to  be  from  50  to  90  per  cent. 

To  well-informed  readers  the  mere  extravagance  of  such  a 
statement  carries  with  it  its  own  refutation.  But  to  the  sus- 
picious, the  prejudiced  and  the  ignorant  there  is  nothing  in- 
credible about  the  most  palpable  and  self-stultifying  exaggera- 
tion. If  Senator  La  Follette  could  carry  off  a  seven  billion 
dollar  misrepresentation  without  question  in  the  United  States 
Senate,  why  should  anyone  hesitate  to  believe  a  statement  that 


19 

for   one   part   of   cost   there  are  nine  parts   of  "water"   in   the 
capitalization   of  American   railways? 

Neither  must  it  be  thought  that  this  cry  of  "water"  is  any 
modern  invention !  In  one  form  or  another  it  has  been  a  con- 
tinuous chorus  which  has  accompanied  the  floating  of  every 
railway  enterprise  since  Colonel  Stevens  first  sought  to  raise 
funds  to  construct  a  railway  from  the  Delaware  River  to  the 
Raritan  in  1815.  Every  government  or  corporation  issuing 
securities  and  selling  them  at  a  discount,  whether  at  90  per 
cent.,  as  the  German  Empire  has  within  six  months,  or  at  50 
cents  on  the  dollar,  as  some  of  the  early  American  railways  had 
to,  has  watered  its  capital  stock  to  that  extent.  In  his  letter  of 
August  24,  1897,  classifying  the  items  to  be  charged  to  cost 
of  construction.  Statistician  Adams  recognized  its  legitimacy 
in  these  words:  "To  this  account  should  be  charged  discount 
on  securities  sold;  interest  on  loans  affected,  and  on  notes 
issued  for  construction  purposes  or  overdue  payments  to  con- 
tractors or  other  creditors,  and  discount,  interest  and  exchange 
on  other  commercial  paper  issued  for  a  similar  purpose." 


When  the  first  railway  was  built  in  the  United  States,  money 
in  a  perfectly  safe  investment  commanded  10  per  cent,  and 
upward.  Neither  then  nor  at  any  time  since  has  railway  con- 
struction appealed  to  investors  as  a  perfectly  safe  investment. 
At  the  start,  national,  state  and  local  authorities  doubted  its 
financial  success  more  seriously  than  its  practicability.  They 
had  absolutely  nothing  upon  which  to  base  a  favorable  judg- 
ment. Such  assistance  as  they  were  finally  induced  to  extend 
to  the  pioneer  railways  was  in  the  nature  of  subsidies,  land 
grants  or  guarantees,  to  encourage  an  experiment  in  transporta- 
tion rather  than  an  investment  made  with  any  hope  or  expecta- 
tion of  a  monetary  return.  How  railways  were  regarded  in 
those  days  is  well  reflected  in  the  report  of  a  special  Board  of 
Commissioners  to  the  Pennsylvania  legislature  in   1831 : 

"While  the  board  avow  themselves  favorable  to  railroads 
where  it  is  impracticable  to  construct  canals,  or  under  some 
peculiar  circumstances,  they  cannot  forbear  expressing  their 
opinion,  that  the  advocates  of  railroads  generally  have  over- 


20 

rated  their  comparative  value.  The  board  believe  that  notwith- 
standing all  the  improvements  that  have  been  made  in  rail- 
roads and  locomotives,  it  will  be  found  that  canals  are  from  two 
to  two  and  a  half  times  better  than  railroads  for  the  purposes 
required  of  them  by  Pennsylvania.  And  they  again  repeat 
that  their  remarks  flow  from  no  hostility  to  railroads,  for  next 
to  canals  they  are  the  best  means  that  have  been  devised  to 
cheapen    transportation." 

In  the  beginning  not  only  in  New  England  and  in  some  of 
the  Southern  States,  as  we  are  generally  told,  but  throughout 
the  Union,  roads  were  largely  built  with  money  raised  by  the 
sale  of  stocks,  and  it  was  upon  the  security  of  these  original 
investments  and  the  rights  thus  secured  that  money  was  bor- 
rowed on  bonds  for  their  completion.  In  these  cases  share- 
holders were  induced  to  subscribe  on  favorable  terms  that  prom- 
ised more  than  the  then  current  rate  of  interest  on  their  money. 
Paid-up  stock  was  issued  at  75,  50  or  even  25  cents  on  the  dol- 
lar, according  as  the  risk  was  great  or  slight,  or  the  returns 
promised  to  be  immediate  or  remote.  The  building  of  a  road 
to  connect  centers  of  population  and  established  trade  relations 
had  manifest  elements  of  profitable  traffic  absolutely  absent 
from  the  majority  of  railway  enterprises  that  quickly  engaged 
the  speculative  enthusiasm  of  that  generation  of  railway  projec- 
tors. 

American  investors  were  quick  to  appreciate  the  difference 
between  investments  in  railway  bonds  and  railway  stocks.  They 
recognized  that  the  stocks  represented,  as  one  writer  (A.  M. 
Wellington)  puts  it,  "the  risk  only,  the  dubious  margin  which 
is  dependent  upon  sagacity,  skill  and  good  management,"  while 
the  bonds  represented  "a  certain  minimum  value,"  for  which 
the  property  and  all  its  hereditaments  and  potentialities  were 
pledged.  Upon  this  simple  distinction  grew  up  the  practice 
of  "sweetening"  the  sale  of  bonds  with  bonuses  of  stock.  Bonds 
carrying  6  to  8  per  cent,  would  be  sold  with  different  amounts 
of  stock  thrown  in  as  a  premium,  the  bond  purchaser  feeling 
sure  of  a  share  in  the  property  in  any  event  and  being  tempted 
to  make  the  investment  by  the  prospect  of  higher  returns  on 
the  stock. 


21 

With  many  of  the  projected  roads  it  was  a  case  of  "wood- 
chuck  or  no  meat."  Their  projectors  simply  were  forced  to 
give  bonuses  with  the  bonds,  sell  the  bonds  at  a  heavy  dis- 
count, make  bricks  without  straw,  or  leave  the  roads  unbuilt 
until  some  less  conservative  parties  came  along  who  had  the  faith 
and  confidence  that  move  mountains  and  build  empires  through 
the  combination  of  capital  and  wisely  directed  energy. 

From  1830  down  to  this  day  there  has  never  been  a  time 
when  the  "sagacity,  skill  and  good  management"  ever  active, 
dominant  and  progressive  in  American  railways,  has  not  more 
than  made  up  for  any  excess  of  nominal  capital  over  capital 
actually  paid  in  and  expended  on  the  property.  But  whether 
this  be  admitted  or  not,  there  is  abundant  evidence  in  the  cost 
of  the  railways  themselves  that  the  par  value  of  their  capital 
in  dollars  and  cents  derived  from  some  source  has  been  ex- 
pended upon  them. 


For  three-quarters  of  a  century  the  managers  of  American 
railways  have  followed  the  sound  financial  policy  of  reinvest- 
ing undivided  profits  in  their  properties.  In  lean  years  and 
fat  alike  this  course  has  been  pursued.  Even  when  in  the 
stress  of  hard  times  there  have  been  no  net  profits  and  some 
roads  have  been  thrown  into  receiverships,  the  process  of  en- 
richment has  gone  on  with  the  proceeds  of  receivers'  certifi- 
cates, which,  with  returning  solvency,  have  gone  to  swell  the 
funded  obligations  of  the  railroads. 

That  the  shareholders  in  American  railways  are  entitled  to 
be  credited  with  the  gross  sum  of  these  undivided  profits  turned 
back  into  the  property  as  well  as  for  all  expenditures  for  better- 
ments, improvements  and  excess  of  cost  of  renewals,  is  admit- 
ted by  every  economist  who  has  given  the  subject  sober  thought. 
The  principle  is  precisely  the  same  as  that  by  which  the  thrifty 
individual  instead  of  spending  all  he  makes  or  earns  invests 
a  percentage  of  it  to  extend  his  business.  The  abstinence 
from  distributing  all  the  net  earnings  of  railways  among  their 
hundreds  of  thousands  of  stockholders,*  which  is  distinctively 

(*)     The  last  official  report  put  the  number  at  327,851. 


22 

an  American  policy,  represents  one  of  the  factors  in  the  crea- 
tion of  wealth  which  has  always  been  recognized  by  economists. 
In  this  case  it  accounts  for  the  comparatively  low  capitaliza- 
tion of  American  railways  in  contrast  to  the  British  practice 
which  has  been  to  distribute  all  the  net  profits  and  charge  all 
betterments  and  improvements  to  capital  account.  The  low 
capitalization  of  American  railways  is  due  to  the  policy  tersely 
expressed  in  the  phrase,  "A  dollar  for  dividends  and  a  dollar 
for  betterments." 

Because  the  official  statistics  are  confused  by  including  the 
returns  from  non-operating  railways, — which  are  in  no  sense 
legitimate  subjects  of  interstate  regulation,  neither  are  they 
common  carriers,  for  they  carry  nothing, — it  is  impracticable  to 
give  anything  like  a  complete  summary  of  the  moneys  expended 
annually  by  the  railways  on  additions,  betterments  and  im- 
provements. In  the  year  1906,  however,  the  returns  made  to 
the  Interstate  Commerce  Commission  by  313  operating  roads 
showed  that  94  per  cent,  of  the  railways  of  the  United  States 
devoted  no  less  than 

$220,316,034 
of  their  income  to  improvements  "charged  to  income  account," 
"other    deductions"    not    chargeable    to    the    operations    of    the 
year  and  in   surplus.     The   income   account  of   these,   roads  in 
1906,  considered  as  a  system, -may  be  summarized  as  follows: 


23 


Income  Account,  1906 
(206,960  Miles  of  Line  Represented.) 


$2,246,421,166 

P.Yr>prn!P«!  n{  nnprat.inn      .        -- 

1,482,148,334 

Net  earnings 

$764,272,832 

67,356,217 

Earnings  less  taxes. 

$696,916,615 

Charges: 

$252,572,777 

13,819,287 

422,322 

116.144,978 

Interest  on  current  liabilities. .      

Interest  on  real  estate  mortgages. ..... 

Rent  leased  lines 

$382,959,364 

Balance  available  for  dividends,  adjustments  and  im- 

$313,957,251 

Dividends — Common. 

$175,334,923 

46,005,909 

166.371 

Preferred 

Other  payments 

$221,507,203 

Balance 

$92,450,048 

Deficits  in  operation  of  76  unprofitable  roads , 

12  292  750 

Net  balance  from  operation 

$80,157,498 

140,158,136 

Balance  available  for  improvements 

$220,316,034 

Disposition  of  balance: 

Improvements  charged  to  income 

$56,502,413 

59,610,904 

104,202,717 

Other  deductions 

Surplus 

$220,316,034 

The  income  from  other  sources  is  principally  derived  from 
rentals  and  from  railway  stocks  and  bonds  owned  by  these 
operating  roads,  and  practically  takes  care  of  the  rents  and 
interest  charges  on  the  debt  incurred  in  the  purchase  of  such 
securities.  If  these  items  of  income  and  expense  could  be 
eliminated,  the  balance  for  improvements  would  not  be  mate- 
rially affected. 

During  the  past  sixteen  years  the  official  statistics  show 
the  following  balances  "available  for  adjustments  and  improve- 
ments," the  sums  under  "permanent  improvements"  being  in- 
cluded in  the  total  sum  available  in  comparison  with  the  net 
dividends  in  each  year: 


24 


Investments  in  Improvements  from  Income  During  Sixteen 
Years   1890-1905. 


Year. 

For  Permanent. 
Improvements. 

Available  for 

Improvemen  t 

and  Adjustments. 

Net  Dividends. 

1905 

$37,720,624 

38,522,548 

41,948,183 

34,712,968 

31,938,901 

25,500,035 

13,070,045 

6,847,905 

4,544,813 

5,162,240 

4,016,382 

4,418,003 

2,957,069 

4,126,273 

4,887,975 

4,511,508 

$185,088,372 

143,691,430 

190,856,993 

172,977,856 

150,392,692 

142,754,358 

92,719,113 

78,370,389 

20,300,720 

26,525,485 

(2)  1,001,805 

(3)  16,821,274 
37,045,024 
45,499,874 
40,721,296 
41,765,491 

$188,175,151 

1904 

183,754,236 

1903 

166,176,586 

1902 

157,215,380 

1901 

131,626,672 

1900 

118,624,409 

1899 

94,273,796 

1898 

83,995,384 

1897 

(1)    87,377,989 

1896 

88,097,757 

1895 

85,961,500 

1894 

101,607,264 

1893 

102,941,289 

1892 

101,929,135 

1891 

96,489,013 

1890 

89,688,204 

Total       

$264,885,472 

$1,289,709,898 

$1,877,933,765 

(1)  Dividends  previous  to  1897  inclusive  are  swelled  by  duplications. 

(2)  There  was  a  deficit  after  paying  for  permanent  improvements. 

(3)  Deficit. 

Notwithstanding  the  fact  that  prior  to  1897  the  dividends  were 
swelled  by  duplications  amounting  to  at  least  $12,000,000  an- 
nually— in  1897  the  exact  figures  were  $12,245,480 — it  will  be 
perceived  that  the  undivided  profits  of  the  railways  devoted 
to  their  betterment  amounted  to  over  three-fourths  of  the  sum 
distributed  in  dividends.  Nor  does  this  showing,  impressive 
as  it  is,  tell  the  whole  truth,  for  in  the  years  1894,  1895  and 
1897  in  addition  to  the  figures  shown  in  the  table  the  railways 
had  to  account  for  deficits  of  unprofitable  roads  amounting  to 
$45,851,294,  $29,845,241   and  $6,120,483,  respectively. 

During  the  years  covered  by  the  foregoing  table  the  total 
amount  of  capital  stock  outstanding  not  owned  by  railway 
corporations  has  increased  from  $3,445,804,726  to  $4,484,504,943 
or  $1,038,700,217,  which  is  almost  exactly  a  quarter  of  a  bil- 
lion ($251,009,681)  less  than  the  aggregate  sum  retained  from 
the  stockholders  and  devoted  to  the  betterment  of  the  property 
in  that  period. 

It  is  out  of  such  persevering,  constructive,  progressive, 
American  financiering  as  this  that  the  railways  have  been  nour- 


25 

ished  by  "water"  into  the  admirable  position  of  the  lowest 
capitalized  high  standard  "railways  in  the  world. 

And  mark  you,  this  does  not  complete  the  tale  of  their  en- 
richment at  the  expense  of  the  stockholders.  In  the  year  1906,' 
the  313  roads  above  mentioned  expended  on  road  and  equip- 
ment $14,593,642  which  was  included  in  operating  expenses, 
exclusive  of  expenditures  in  certain  cases  amounting  to  less 
than  $100  on  road,  $300  on  equipment,  and  not  taking  account 
of  excess  of  weight  of  rails  and  improved  quality  in  renewals 
on  some  of  the  largest  systems  in  the  country.  This  sum  is 
equivalent  to  $70  per  mile  of  line.  Accepting  this  as  an 
average,  and  it  is  a  low  one,  the  railways  of  the  United  States 
in  thirty  years  between  1875  and  1905  have  paid  over  $300,000,- 
000  for  improvements  and  charged  it  to  operating  expenses. 
Does  anyone  seriously  question  that  this  is  a  legitimate  invest- 
ment of  money  belonging  to  stockholders? 

Between  1850  and  1900  the  improved  farm  lands  in  the  United 
States  increased  from  113  to  414  million  acres,  or  considerably 
less  than  fourfold.  In  the  meantime  the  value  of  all  farm  prop- 
erty increased  from  $3,967,343,580  to  $20,439,901,164,  or  more 
than  fivefold.  The  average  value  per  acre  of  all  farms  has 
risen  from  $13.50  in  1850  to  $25  in  1900,  making  a  difference 
of  over  $8,000,000,000  in  the  wealth  of  American  farmers,  com- 
pared with  what  it  would  have  been  at  the  prices  of  fifty  years 
ago.  Would  anyone  call  this  vast  accretion  of  wealth  "water" 
because  chiefly  due  to'  the  railways  and  not  represented  by 
any  equivalent  capital  invested  in  farms,  except  out  of  surplus 
earnings  ? 


Each  generation  of  railway  critics  has  found  some  particular 
American  road  to  single  out  as  the  terrible  example  of  over- 
capitalization. It  used  to  be  the  Erie.  Now  it  is  the  Chicago 
and  Alton  Railway  that  is  the  target  of  this  unenviable  noto- 
riety. Twenty-six  years  ago  the  Chicago  and  Alton's  total 
capital  account,  covering  840  miles  of  main  line,  was  $37,821,727 
or  $45*239  per  mile.  If  divided  by  the  miles  of  all  tracks  it 
was  equal  to  $35,629,  and  President  Blackstone  frequently 
claimed  that  the  Alton  was  capitalized  at  only  60  per  cent,  of 


26 

its  accumulated  cost.  Twenty-six  years  ago  its  disbursements 
on  account  of  funded  debt,  rent  and  dividends  amounted  to 
$2,624,446,  or  nearly  7  per  cent,  on  its  total  capital  account, 
which  covered  the  leased  lines. 

Last  year  the  capital  liabilities  of  the  Chicago  and  Alton  were 
$119,046,218,  or  $122,728  per  mile  of  line,  or  $83,658  per  mile 
of  all  tracks.  The  reader  will  perceive  that  the  capital  per  mile 
of  line  had  been  nearly  trebled  while  per  mile  of  track  it  had 
been  only  slightly  more  than  doubled. 

Such  are  the  incomplete  facts  coupled  with  sensational  stories 
of  fortunes  made  through  manipulations  that  have  filled  the 
press  with  a  perfect  deluge  of  charges  of  ''water."  These  it 
is  not  necessary  to  discuss  now.  Here  it  is  sufficient  to  say 
that  the  total  annual  disbursements  on  account  of  this  gross 
capitalization  foots  up  $3,468,528,  or  2.92  per  cent  Moreover, 
these  capital  disbursements  in  1906  amounted  to  only  $2,347 
per  mile  of  track,  where  the  like  disbursements  in  1880  amounted 
to  $2,473,  ^"d  in  1870  to  $3,028  per  mile  of  track  laid  with  56 
to  65  lb.  iron  rails. 

Paradoxical  as  it  must  seem  to  the  economists  of  the  hydro- 
pathic school,  the  increased  capitalization  of  the  Chicago  and 
Alton  has  been  attended  by  a  remarkable  decline  in  the  rates 
paid  by  the  public  both  for  passengers  and  freight,  as  the  fol- 
lowing statement  shows: 


PERIODS  OF 

Low  Capital, 

High  Capital. 

1874  (a) 
Cents. 

1880. 
Cents. 

1906. 

Cents. 

Passenger  receipts  per  mile 

3.267 
2.123 

2.076 
1.206 

2  05 

Freight  receipts  per  ton  per  mile 

0  639 

(a)     Passenger  and  ton  mile  units  first  available  for  1874. 


Evidently  the  "water"  in  the  Chicago  and  Alton,  like  the 
paints  of  the  master  artist,  must  have  been  "mixed  with  brains" 
to  produce  such  results,  and  its  patrons,  if  not  the  "social  agi- 
tators," have  reason  to  await  the  next  shower  with  equanimity. 


27 

It  was  Judge  Thomas  M.  Cooley  who  first  directed  attention 
to  the  danger  of  arousing  popular  hostility  against  railway 
management  because  great  private  fortunes  had  been  amassed 
in  their  control.  "The  natural  conclusion,"  he  said,  in  his  first 
report  as  chairman  of  the  Interstate  Commerce  Commission, 
"which  one  draws  who  must  judge  from  surface  appearances 
is,  that  these  fortunes  are  unfairly  acquired  at  the  expense  of 
the  public;  that  they  represent  excessive  charges  on  railroad 
business,  or  unfair  employment  of  inside  privileges,  and  fur- 
nish in  themselves  conclusive  evidence  that  current  rates  are 
wrong  and  probably  extortionate.  An  impression  of  this  sort, 
when  it  happens  to  be  wide  of  the  fact,  is  for  many  reasons  un- 
fortunate. It  creates  or  strengthens  a  prejudice  against  all  rail- 
road management — the  honest  as  well  as  the  dishonest — which 
afifects  the  public  view  of  all  railroad  questions;  it  renders  it 
more  difficult  to  deal  with  such  questions  calmly  and  dispas- 
sionately; it  makes  the  public  restive  under  the  charges  they 
are  subjected  to,  even  though  they  be  moderate  and  necessary; 
it  tends  to  strengthen  a  feeling  among  the  unthinking  that  cap- 
ital represents  extortion.  However  careful,  considerate,  fair  and 
just  the  management  of  any  particular  road  may  be,  and  how- 
ever closely  it  may  confine  itself  to  its  legitimate  business,  it 
is  impossible  that  it  should  wholly  escape  the  ill  effects  of  this 
prejudice,  which  are  visited  upon  all  roads  because  some  con- 
spicuous railroad  managers  have  by  their  misconduct  given 
in  the  public  mind  a  character  to  all." 

Throughout  every  period  of  the  development  of  American 
railways,  economists,  theorists  and  agitators  have  been  so  in- 
tent on  watching  the  black  spots  on  the  system  as  revealed  in 
Wall  Street  speculations  and  financial  crises  that  they  have  over- 
looked its  underlying  sanity  and  solvency.  Even  such  an 
eminent  authority  as  Charles  Francis  Adams  failed  to  properly 
emphasize  the  fact  that  it  was  overconstruction  and  not  over- 
capitalization that  brought  about  the  financial  disasters  of  the 
seventies.  He  recognized  that  "the  mania  for  construction, 
which  began  in  1866  and  culminated  in  the  crash  of  1873,"  had 
outstripped  the  business  needs  of  the  country,  but  he  reserved 
his  severest  criticism  for  the  gross  scandals  that  disgraced  the 


28 

management  of  some  of  the  companies.  Morally  he  was  right, 
and  no  strictures  could  be  too  harsh  for  the  jobbery  that  pre- 
vailed in  railway  speculation.  But  through  the  worst  of  it  the 
railways  of  the  country  went  steadily  forward,  some  with  water 
and  some  without,  giving  the  American  people  constantly  im- 
proved  service    at    constantly    declining   rates. 

Then  as  now  the  railways  were  entitled  to  be  judged  by 
their  generar  performances  and  not  by  the  misdeeds  of  their 
black  sheep.  In  the  very  heat  and  stress  of  the  Granger  move- 
ment, when  the  railway  companies  were  compared  with  the 
feudal  barons  as  levying  iniquitous  taxes  upon  the  commerce 
of  the  country,  they  were  not  paying  extravagent  nrofits  on  cost 
of  construction,  they  were  not  over-capitalized  and  the  rates 
charged  to  shippers  had  been  steadily  declining  for  three  de- 
cades. 

In  1873  the  railways  of  the  United  States  were  over-con- 
structed but  not  over-capitalized.  Today  they  are  both  under- 
constructed  and  under-capitalized,  but  the  facts  have  been  so 
misrepresented  that  the  springs  of  fresh  capital  are  dried  up  by 
popular  and  legislative  hostility.  A  year  ago  the  railways  were 
in  a  position  to  borrow  money  for  much  needed  improvements 
and  extensions  upon  reasonable  terms.  Today  they  are  forced 
to  abandon  their  extensions  or  make  loans  upon  terms  that  to 
the  ignorant  will  have  a  watery,  if  not  a  usurious  aspect. 

Easy  chair  economists  may  disapprove  of  it,  but  it  is  a 
sounder  policy  for  a  railroad  to  borrow  money  at  3  per  cent, 
and  issue  an  equivalent  amount  of  stock  as  a  bonus  to  obtain 
the  loan,  than  to  sell  a  6  per  cent,  bond  for  the  same  amount. 
The  funds  realized  are  the  same,  but  in  the  former  case  the 
fixed  charge  is  less  and  the  stock  affords  an  incentive  to  its 
holders  to  employ  the  ability,  energy  and  industry  necessary 
to  the  financial  success  of  the  property.  Such  water  is  as  nec- 
essary to  the  building  of  a  new  railroad  or  the  healthy  develop- 
ment of  an  old  one  as  blood,  which  is  more  than  nine  parts 
water,  is  to  the  human  body. 


29 


III 

HISTORY  OF  AMERICAN  RAILWAYS 

"The  inventor  of  the  railroad  ought  to  be  ranked  among  the  chief  builders 
of  ihe  American  Union."— John  Fiske. 

If  there  are  canals  all  over  the  face  of  the  planet  Mars  it 
must  be  because  there  are  no  railways  in  Mars.  But  for  the 
inspiration  of  James  Watt  and  the  genius  of  George  Stephenson 
we  might  still  be  as  dependent  on  canals  for  artificial  water- 
ways as  were  the  almost  human  beavers  before  Venice  was 
mistress  of  the  seas  and  the  internal  transportation  of  Holland 
was  the  envy  of  less  favored  nations. 

It  is  impossible  for  the  present  generation  to  realize  what 
it  owes  to  the  railways,  which,  with  their  bands  of  steel,  fairly 
bind  the  United  States  in  an  indissoluble  union,  without  a  glance 
back  at  the  conditions  prevailing  on  this  continent  before  their 
introduction.  Between  the  first  English  settlement  of  Virginia, 
whose  tercentennial  we  are  now  celebrating,  and  the  building 
of  the  first  real  railway  from  Baltimore  to  Ellicott's,  not  a  step 
forward  had  been  taken  to  expedite  communication  any  con- 
siderable distance  away  from  tidewater  and  navigable  rivers. 
The  first  practical  steamboat  had  made  its  appearance  on  the 
Clyde  in  1802.  Five  years  later  it  took  Robert  Fulton's  Cler- 
mont 32  hours  to  make  the  trip  from  New  York  to  Albany— 
an  average  speed  of  less  than  5  miles  an  hour. 

In  1818  the  first  steamboat  crossed  the  Atlantic  in  26  days 
— a  feat  which  has  been  accomplished  by  sailing  vessels  in 
practically  half   the  time. 

In  the  matter  of  land  transportation  the  world  in  the  cen- 
turies between  had  not  improved  upon  the  road  making  of  the 
Romans.  No  advance  had  been  made  on  the  motive  power  of 
the  horse,  the  sure-footed  pack  mule  and  the  hump-backed 
"ship  of  the  desert."  At  the  opening  of  the  19th  century,  as 
now,  the  United  States,  standing  in  greater  need  of  internal 
means  of  transportation  than  any  other  country  on  earth,  had 
the  poorest  public  roads  of  any  civilized  community. 

That  we  may  fully  appreciate  the  physical  conditions  in  the 


30 

republic  before  the  railways  came  to  bind  it  into  a  physical 
as  well  as  a  political  union  of  sovereign  states,  let  me  present 
them  as  described  in  a  few  salient  paragraphs  culled  almost  at 
random  from  Henry  Adams'  "American  History  During  the 
First  Administration  of  Thomas  Jefferson."  No  running  com- 
ment is  necessary  to  suggest  the  contrast: 

"According  to  the  census  of  1800  the  United  States  of  America 
contained   5,308,483   persons" — one-fifth   of   them   negro   slaves. 

"Even  after  two  centuries  of  struggle  the  land  was  still  un- 
tamed. 

"The  center  of  population  rested  within  eighteen  miles  of 
Baltimore. 

"Except  in  political  arrangement,  the  interior  was  little  more 
civilized  than  in  1750  and  was  not  much  easier  to  penetrate 
than  when  LaSalle  and  Hennepin  found  their  way  to  the  Mis- 
sissippi more  than  a  century  before. 

"A  great  exception  broke  this  rule.  Two  wagon  roads  crossed 
the  Alleghany  Mountains  in  Pennsylvania;  while  a  third  passed 
through  Virginia  southwestward  to  the  Holston  River  and  Knox- 
ville  in  Tennessee. 

"Nowhere  did  eastern  settlements  touch  the  western.  At 
least  one  hundred  miles  of  mountainous  country  held  the  two 
regions  everywhere  apai>t.  The  shore  of  Lake  Erie,  where  alone 
contact  seemed  easy,  was  still  unsettled. 

"The  same  bad  roads  and  difficult  rivers,  connecting  the 
same  small  towns,  stretched  into  the  same  forests  in  1800  as 
when  the  armies  of  Braddock  and  Amherst  pierced  the  western 
and  northern  wilderness. 

"Even  by  water,  along  the  seaboard,  communication  was  as 
slow  and  almost  as  irregular  as  in  colonial  days.  The  voyage 
to  Europe  was  comparatively  more  comfortable  and  more  regu- 
lar than  the  voyage  from  New  York  to  Albany. 

"If  America  was  to  be  developed  along  the  lines  of  water 
communication  alone,  by  such  means  as  were  known  to  Eu- 
rope, Nature  had  decided  that  the  experiment  of  a  single  re- 
publican government  must  meet  with  extreme  difficulties.  By 
water  an  Erie  Canal  was  already  foreseen;  by  land,  centuries 
of  labor  could  alone  conquer  those  obstacles  which  Nature  per 


31 

mitted  to  be  overcome,  highways  furnished  no  sure  measure 
of  progress.  No  matter  how  good  the  road,  it  could  not  com- 
pete with  water,  nor  could  heavy  freights  in  great  quantities 
be  hauled  long  distances  without  extravagant  cost. 

"At  any  known  rate  of  travel  Nashville  could  not  be  reached 
in  less  than  a  fortnight  or  three  weeks  from  Philadelphia. 

"Politically  each  group  of  States  lived  a  life  apart. 

"In  the  Northern  States,  four  miles  an  hour  was  the  aver- 
age speed  for  any  coach  betv/een  Bangor  and  Baltimore.  Be- 
yond the  Potomac  the  roads  became  steadily  worse,  until  south 
of  Petersburg  even  the  mails  were  carried  on  horseback. 

"Of  eight  rivers  between  Monticello  and  Washington,  Jeffer- 
son wrote,  'five  have  neither  bridges  nor  boats.' 

"The  usual  charge  (for  passengers)  in  the  Northern  States 
was  six  cents  a  mile  by  stage. 

"The  Saxon  farmer  of  the  eighth  century  enjoyed  most  of 
the  comforts  known  to  Saxon  farmers  of  the  eighteenth. 

"Fifty  or  a  hundred  miles  inland  more  than  half  the  homes 
were  log  cabins,  which  might  or  might  not  enjoy  the  luxury 
of  a  glass  window."* 

"As  a  rule  American  capital  was  absorbed  in  shipping  or 
agriculture,  whence  it  could  not  suddenly  be  withdrawn.  No 
stock  exchange  existed,  and  no  broker  exclusively  engaged  in 
stock-jobbing,  for  there  were  few  stocks. 

"A  probable  valuation  of  the  whole  United  States  in  1800 
was  $1,800,000,000,  equal  to  $328  for  each  human  being,  includ- 
ing slaves;  or  $418  to  each  free  white. 

"Taxes  amounted  to  little  or  nothing,  and  wages  averaged 
about  a  dollar  a  day." 


Such,  in  brief,  is  Mr.  Adams'  description  of  the  conditions 
prevailing  in  the  United  States  at  the  beginning  of  the  nine- 
teenth century.  That  they  had  been  but  little  bettered  prior 
to  the  advent  of  railways  is  the  testimony  of  other  historians, 
from  De  Tocqueville  down.    The  observant  philosophic  French- 


(*)     In  passing  it  may  be  noted  that  in  1809  Abraham  Lincoln  was  born  in  one  of  these  log 
cabins  without  the  luxury  of  a  glass  window. 


32 

man  whose  "Democracy  in  America"  was  published  in  1835, 
found  that, 

"The  valley  of  the  Mississippi  is,  upon  the  whole,  the  most 
magnificent  dwelling  place  prepared  by  God  for  man's  abode; 
and  yet  it  may  be  said  that  at  present  it  is  but  a  mighty  desert." 

Daniel  Webster,  with  oratorical  license,  ridiculed  the  possi- 
bility of  the  present  State  of  Washington  becoming  a  part  of 
the  Union,  on  the  ground  that  a  Senator  elected  from  that  State 
could  not  reach  the  national  capital  before  the  expiration  of  his 
term  of  office.  Today  Senator  Foster  can  reach  Washington 
from  Taconia  in  half  the  time  it  took  Webster  to  get  to  Wash- 
ington  when   first  elected   to  the   Senate   from   Massachusetts. 

From  the  dawn  of  civilization  canals  had  been  the  means 
by  which  man  had  sought  to  supplement  Nature's  waterways 
in  the  transportation  of  merchandise,  especially  of  a  bulky  or 
heavy  nature.  There  were  canals  in  Egypt  seventeen  centu- 
ries before  Christ,  and  a  canal  mania  raged  in  England  seven- 
teen centuries  after  that  central  event  in  the  upward  progress 
of  mankind. 

The  first  canal  opened  in  the  United  States  was  that  con- 
necting Boston  with  Concord  river  in  1804.  But  the  active 
period  of  canal  digging  did  not  come  until  later  when,  in  1825, 
the  Erie  Canal  was  opened  from  Albany  to  Buffalo.  This  was 
the  cause  of  universal  rejoicing  throughout  the  country.  Be- 
gun in  1817,  eight  years  and  between  eight  and  nine  million 
dollars  were  spent  in  its  completion.  Although  it  was  352  miles 
long  and  40  feet  wide  at  the  top,  it  was  so  shallow — only  4  feet 
— that  it  was  irreverently  spoken  of  as  the  longest  and  most 
expensive  gutter  in  the  world. 

The  joyful  tidings  of  its  official  opening  was  boomed  to 
New  York  by  relays  of  cannons  in  80  minutes — which  was 
transmitting  the  news  with  an  approach  to  lightning  rapidity 
for  those  days. 

By  means  of  this  marvel  of  early  American  energy  three 
fast-walking  horses  were  enabled  to  draw  a  canal  boat  four 
miles  an  hour,  and  we  read  that  "At  the  end  of  the  fourth 
day  from  Schenectady  the  jaded  traveller  reached  Buffalo."  But 
more  important  was  the  fact  that,  where  previous  to  the  build- 


33 

ing  of  the  canal  '*it  cost  $5  and  30  days  to  ship  100  pounds  from 
Philadelphia  to  Columbus,  Ohio,  after  it  opened  the  time  was 
reduced  to  20  da3^s  and  the  cost  to  $2.50!"  In  every  way  it 
answered  the  expectations  of  its  enthusiastic  projectors,  whose 
enterprise  was  repaid  by  seeing  its  business  double  during  the 
first  seven  years. 

In  1835  the  Erie  canal,  at  a  cost  of  $25,000,000,  was  enlarged 
to  70  feet  wide  at  the  top  and  40  at  the  bottom.  It  had  been 
deepened  to  7  feet  and  provided  with  "^2  locks.  This  raised 
its  aggregate  cost  to  about  $34,000,000,  or  $97,000  per  mile,  an 
expenditure  fully  justified  by  the  results.  By  1852  its  receipts 
reached  $3,000,000  a  year,  or  nearly  three  times  what  they 
were  in  1826.  In  the  meantime  its  tolls  had  been  reduced  to 
one-third  th.e  original  charges.  Then  began  its  struggle  with 
railway  competition,  lasting  until  1871,  when  it  finally  failed  to 
pay  expenses  of  maintenance.  In  spite  of  this  demonstration  of 
the  impotence  of  canals  to  cope  with  railways,  the  legislature 
of  New  York  has  not  hesitated  to  renew  the  contest  by  ex- 
pending $100,000,000  for  the  enlargement  and  improvement  of 
the  old  waterway. 


Judge  Cooley  has  summed  up  the  result  of  the  struggle  be- 
tween waterways  and  railways  in  the  memorable  words:  "The 
experience  of  the  country  has  demonstrated  that  the  artificial 
waterways  can  not  be  successful  competitors  with  the  railroads 
on  equal  terms." 

Just  as  the  American  people,  with  characteristic  energy,  were 
projecting  canals  in  every  direction,  George  Stephenson  suc- 
ceeded in  demonstrating  the  feasibility  of  substituting  steam 
for  horses  in  the  propulsion  of  cars  on  rails.  When  he  com- 
bined the  escape-steam  blast,  which  provided  the  draft  neces- 
sary for  a  hot  fire,  and  the  tubular  boiler  to  multiply  the  heat- 
ing surface,  the  knell  of  canals  on  this  continent  was  struck, 
although  many  years  were  to  elapse  before  it  was  realized. 

in  1825,  the  same  memorable  year  that  sav\r  tne  opening  of 
the  Erie  Canal,  the  Stockton  and  Darlington  railway  was  opened 
for  passengers,  and  in  1829  Stephenson's  locomotive,  the  "Rock- 


34 

et,"  attaiaed  a  speed  of  29^  miles  an  hour.  It  was  this  feat  of 
speed  that  hastened  the  struggle  with  the  slow-going  canal  boat, 
and  no  thought  as  to  the  locomotive's  efficiency  in  drawing  heavy 
loads — something  not  dreamed  of  in  the  minds  of  engineers  ex- 
perimenting with  engines  weighing  from  3  to  7  tons — the  lighter 
machines  having  the  preference  for  American  roads.  The  im- 
possibility of  canals  responding  to  the  American  passion  for 
speed  finally  sealed  their  fate,  outside  the  deliberation:-  of  politi- 
cal conventions  and  legislative  bodies. 


The  United  States  is  most  truly  a  land  of  "magnificent  dis- 
tances." Before  the  era  of  railways  its  inhabitants  were  almost 
as  isolated,  so  far  as  means  of  rapid  communication  were  con- 
cerned, as  were  the  different  tribes  which  roamed  the  continent 
before  the  voyage  of  Columbus.  The  horse  or  mule  power 
canal  boat  was  "slow  freight"  compared  with  the  swift  moc- 
casin shod  despatch  bearer  of  Pontiac.  The  almost  magical 
transformation  that  came  across  the  physical  possibilities  of  the 
United  States  with  the  introduction  of  the  steam  locomotive  has 
given  to  the  genesis  of  the  American  railway  an  increasing 
fascination  for  American  historians.  To  them  the  fact  that  tUe 
first  tram-road  was  built  from  the  granite  quarries  at  Quincy, 
Mass.,  to  Neponset  river  in  1826  to  transport  stones  for  the  con- 
struction of  Bunker  Hill  monument  obscures  the  fact  that  it  was 
not  a  railway  in  any  true  sense,  being  merely  a  quarry  road 
operated  by  gravity  and  horse  power.  It  was  not  even  the  first 
of  its  kind  in  the  United  States  and  never  rose  to  the  dignity 
of  a  railway  until  purchased  by  the  Old  Colony  Railroad  Com- 
pany in  1872.  Then  for  the  first  time  its  relaid  T  rails  felt  the 
swift  triumphant  tread  of  locomotive  wheels. 

Another  gravity  road  frequently  mentioned  in  the  early  his- 
tories of  American  railways  was  built  at  Mauch  Chunk,  Penn- 
sylvania, in  1827,  and  still  another  for  the  Carbondale  and 
Honesdale  Railroad  the  following  year.  It  was  on  the  last 
named  road  that  the  first  locomotive  used  in  the  United  States, 
the  "Stourbridge  Lion,"  built  in  England,  had  its  trial  trip. 
Although  its  weight  is  stated  as  only  6  or  7  tons,  it  was  found 
too  heavy  for  the  primitive  tracks  of  those  days. 


35 


To  the  Baltimore  and  Ohio  belongs  the  credit  of  being  the 
first  American  railway  designed  and  built  for  both  passenger 
and  freight  traffic.  At  the  ceremony  of  breaking  ground  for 
this  road  on  July  4,  1828,  Charles  Carroll  of  Carrollton,  then 
in  his  92d  year,  said,  "I  consider  this  among  the  most  important 
acts  of  my  life,  second  only  to  that  of  signing  the  Declaration 
of  Independence,  if  even  second  to  that."  He  lived  to  see  it 
completed  to  the  Point  of  Rocks,  73  miles  from  Baltimore.  Origi- 
nally operated  as  a  horse  railroad,  the  Baltimore  and  Ohio  was 
the  scene  of  the  celebrated  contest  between  a  horse  drawn  car 


Peteh  Coopek's  Locomotive,  18S0. 


and  the  experimental  locomotive,  Tom  Thumb,  built  by  Peter 
Cooper.  Unfortunately  for  the  engine,  the  belt  that  worked 
Air.  Cooper's  contrivance  for  blowing  the  fire  slipped  off  the 
drum  at  a  critical  stage  of  the  race,  and  before  it  could  be  re- 
adjusted the  "gallant  gray"  of  the  story  came  in  an  easy  win- 
ner. But  even  in  this  contest  the  "iron  horse"  demonstrated 
its  superiority,  barring  accidents,  over  the  horse  which  for  ages 
had  been  the  recognized  symbol  of  power  and  speed.  The  Balti- 
more and  Ohio  road  was  opened  for  traffic  for  14  miles  in  1830 — 
the  year  Abraham  Lincoln  left  his  mother's  log  cabin  to  shift  for 


36 

himself.  Within  the  past  eight  years  the  original  main  line  be- 
tween Relay,  9  miles  from  Baltimore,  and  Washington  Junction 
has  been  entirely  reconstructed,  including  the  straightening  of 
curves  and  a  reduction  of  grades,  at  a  cost  of  over  $3,000,000, 
or  $52,000  per  mile. 

To  Colonel  John  Stevens  of  Hoboken  seems  to  be  due  the 
high  honor  of  being  the  first  conspicuous  American  persistently 
to  urge  the  construction  of  locomotives  on  railways  for  long 
distance  transportation  on  this  continent.  He  built  and  ran  a 
steamboat  nine  years  before  Fulton  built  the  Clermont,  and  also 
patented  a  multi-tubular  boiler  as  early  as  1803.  Stevens  built 
and  operated  the  first  engine  that  ever  ran  on  wooden  tracks  in 
the  United  States.  As  early  as  181 1  he  had  applied  to  the  legis- 
lature of  New  Jersey  for  a  railroad  charter.  Disappointed  in 
this  application,  he  endeavored  to  persuade  the  Erie  Canal 
Commissioners,  then  just  appointed  in  New  York,  to  build  a 
railroad  instead  of  a  canal  across  the  state  from  Albany  to 
Buffalo.  Failing  of  this,  he  again  applied  to  the  law  makers 
of  his  own  state,  and  this  time,  in  181 5,  secured  the  first  railroad 
charter  in  the  New  World,  to  build  a  road  to  join  the  Delaware 
and  Raritan  rivers,  connecting  at  either  end  with  steamboat 
lines  for  Philadelphia  and  New  York.  His  road  did  not  ma- 
terialize, for  the  same  reason  that  for  yet  a  dozen  years  was 
to  nip  in  the  bud  many  similarly  promising  projects — lack  of 
confidence,  credit  and  capital.  Investors  were  not  yet  ready  to 
assume  the  risk  of  placing  their  money  in  an  enterprise  where 
the  investment  was  certain  and  irrevocable  but  the  profits  were 
still  problematical.  In  those  days  the  necessary  funds  had  to 
be  secured  by  selling  securities  at  a  discount. 

Turned  down  by  New  York  and  having  made  a  "dry  haul" 
in  New  Jersey,  Colonel  Stevens  next  directed  his  attention  to 
Philadelphia,  where,  tlirough  the  aid  of  some  of  its  business 
men,  in  1823  he  secured  a  charter  to  build  a  railroad  from  Phila- 
delphia to  Columbia,  a  town  on  the  Susquehanna  twenty-seven 
miles  south  of  Harrisburg.  Some  of  the  privileges  granted  in 
this  charter,  says  MacMasters,  seem  curious  enough.  "The 
charter  was  to  be  in  force  for  ten  years;  the  rails  were  to  cross 
all  pikes  and  roads  on  causeways  and  the  company  might  charge 


37 

seven  cents  a  ton  per  mile  on  freight  moving  westward,  and  half 
that  sum  on  freight  bound  east." 

Although  this  charter  was  subsequently  repealed  and  the  State 
of  Pennsylvania  itself  assumed  the  task  of  building  a  railroad 
from  Philadelphia  through  Lancaster  to  Columbia,  the  charter 
to  Stevens,  with  its  provisions  for  a  seven  cent  rate  per  ton 
mile,  is  worth  recalling  for  the  contrast  it  affords  with  the  rate 
of  the  Pennsylvania  Railroad  Company  of  59/100  of  a  cent  in 
1906.  Before  1830  the  potentialities  that  lay  behind  railroads 
were  fully  recognized,  but  the  means  to  grasp  the  opportunity, 
namely — mono}  and  labor,  were  scarce  and  almost  impossible 
to  get. 


Rich  as  the  histories  of  those  early  days  are  in  stories  and 
incidents  showing  with  what  persevering  enthusiasm  and  in- 
genuity that  generation  of  Americans  approached  the  task  of 
adopting  and  adapting  the  railway  to  the  needs  and  conditions 
of  the  country,  they  are  singularly  shy  of  accurate  data  as  to 
the  cost  of  construction.  Somewhere  it  is  told  that  the  four 
miles  of  the  Quincy  tramway  cost  ''about  $34,000"  or  $8,500 
per  mile.  With  nice  exactness  we  know  that  the  first  powerful 
7-ton  Stephenson  locomotive  brought  to  this  country  "cost  $4,- 
869.59,  including  freight,  duties  and  insurance."  We  know  that 
the  first  railways  consisted  of  local  lines  built  generally  to  con- 
nect waterways,  that  they  sought  level  routes,  that  they  avoided 
steep  grades;  that  Colonel  Stevens  had  to  build  a  circular  rail- 
way to  demonstrate  that  a  locomotive  could  haul  a  train  around 
curves ;  that  the  first  rails  were  long  wooden  stringers  protected 
on  the  top  from  the  wear  of  the  wheels  by  strap  iron  nailed  on, 
and  that  the  locomotives  only  weighed  a  few  tons  and  gave 
more  promise  of  speed  than  of  tractive  power.  Engineers  still 
doubted  the  adhesion  of  a  smooth  wheel  on  a  smooth  rail.  There 
were  no  through  routes  in  1830,  the  longest  road  actually  under 
construction  being  from  Charleston  135  miles  to  Hamburg, 
South  Carolina. 

We  know  that  the  country  highway  of  those  days  cost  from 
$300  to  $500  to  build  and  the  rate  to  move  a  ton  mile  on  it  was 
about  25  cents. 


38 


We  know  that  the  early  turnpikes  cost  from  $3,000  to  $5,000 
and  reduced  the  cost  of  moving  a  ton  to  20  cents  a  mile,  at  which 
figure  the  average  rate  stands  today.  According  to  a  recent 
bulletin  of  the  Bureau  of  Statistics  the  present  team  haul  cost  to 
agriculture  averages  23  cents  per  ton  mile,  the  average  on  wheat, 
corn  and  oats  being  19  cents,  fruit  and  vegetables  from  28  to 
31,  and  on  cotton  27  cents  per  ton  mile. 

But  we  do  not  know  whether  the  first  railways  cost  more  or 
less  than  the  $25,000  a  mile  of  the  original  Erie  four  foot  gutter. 
All  we  do  know  of  them  in  this  respect  is  that  the  opportunity 
for  them  was  as  broad  as  the  continent,  the  necessity  for  them 
apparent,  the  demand  for  them  insistent  and  imperative,  while 
the  money  with  which  they  were  financed  had  to  be  borrowed 
mostly  in  England  and  Europe  at  8  to  lofo,  and  everything  that 
went  into  their  construction  had  to  be  brought  from  abroad  or 
built  at  home  in  primitive  fashion.  The  inevitable  discount  on 
the  sale  of  securities  was  the  "water"  without  which  American 
railways  could  not  have  been  built. 

The  final  picture  of  the  condition  of  the  United  Stales  before 
the  railways  came  to  bind  its  isolated  communities  into  one 
homogeneous  nation  is  afforded  by  the  National  census  of  that 
year: 


United  States  Census,  1830. 


309,527 

30,388 

297,675 

76,748 

34.730 

516,823 

157,445 

343,031 

687,917 

215,739 

399,455 

447,040 

610,408 

31,639 

136,621 

140,455 

269,328 

320,823 

Delaware 

New  York 

1,918,608 

Florida 

North  Carolina 

737,987 

Ohio 

937,903 

Illinois 

1,348,233 

Rhode  Island 

97,199 

581,185 

681,904 

Maine 

280,652 

1,211,405 

District  of  Columbia 

U.  S.  Sailors  and  persons  sta- 
tioned abroad 

39.834 

5,318 

Total 

12,866,020 

The  omissions  of  this  table  are  its  most  significant  features. 
Where  are  the  great  states  of  California,  Colorado,  Idaho,  Iowa, 


39 


Kansas,  Minnesota,  Montana,  Nebraska,  Nevada,  the  Dakotas, 
Oregon,  Texas,  Utah,  Washington,  Wisconsin,  Wyoming,  Okla- 
homa and  the  territories?  They  were  waiting  for  the  railways; 
and  most  of  them  had  to  wait  three  decades  longer  before  they 
knew  the  real  rush  of  settlers  which  came  when  the  railways, 
with  admirable  boldness,  ventured  to  build  into  the  wilderness, 
in  many  instances  before  the  Indians  had  finally  left  it. 


Before  closing  this  brief  story  of  the  beginnings  of  American 
railways,  it  may  be  permitted  to  pass  in  review  their  first  steps 
toward  the  conquest  of  the  continent. 

As  its  name  implies, -the  Baltimore  and  Ohio  was  chartered 
to  build  a  railway  from  the  city  of  Baltimore  to  the  Ohio  river, 
a  distance  of  over  300  miles.  It  did  not  reach  its  destination 
until  1853.  Only  half  the  distance,  with  a  branch  to  Washing- 
ton, was  completed  within  the  first  decade. 


De  Witt  Clinton  Engine  and  Train,    . 
At  the  Opening  op  the  Mohawk  and  Hudson  Railroad  September,  1831. 

When  the  State  of  Pennsylvania  took  the  construction  of  the 
Philadelphia  and  Columbia  railway  off  the  hands  of  Colonel 
Stevens'  conipan}^,  the  line  was  located  in  1828  and  construc- 
tion commenced  in  the  year  following.  This  was  the  first  rail- 
way work  unaertaken  by  a  State  government.  About  twenty 
miles  at  the  eastern  end  was  opened  for  travel  in  1832  and  by 
1834  the  entire  line,  with  two  tracks,  was  completed.  Both 
passenger  and  freight  cars  were  owned  by  individuals  or  com- 
panies, who  furnished  the  horses  or  mules  to  haul  them,  paying 
the  State  toll  for  the  use  of  the  road.  At  first  the  State  owned 
two  locomotives  and  the  number  was  increased  so  that  by  1834 
animal  power  on  the  long  stretches  of  the  road  was  discon- 
tinued. A  regular  toll  was  charged  by  the  State  for  the  use  of 
its  locomotives. 


40 


McMasters'  description  of  the  trip  west  over  this  early  state 
road  gives  a  vivid  summary  of  the  hybrid  railroad  and  canal 
travel  in  the  early  thirties. 

"It  was  then  the  custom,"  says  the  historian,  "for  travelers 
going  west  from  Philadelphia  to  leave  their  names  and  addresses 
with  the  agent  of  some  transportation  line  the  day  before  de- 
parture, in  order  that  the  "bus"  which  went  the  rounds  of  the 
city  early  every  morning  should  call  for  and  carry  them  and 
their  baggage  to  the  depot.  Once  there  the  passengers  were 
hurried  into  the  cars  which  were  coupled  in  pairs^  their  luggage 
was  piled  on  the  roofs,  and  the  little  trains  were  hauled  by  horses 
to  the  foot  of  an  inclined  plane  on  the  west  bank  of  the  Schuyl- 
kill River  near  Belmont.     Up  this  plane  they   were  pulled  by 


Thb  "Old  Ironsides,"  1832 
Baldwin's  First  Locomotive.    Weight  5  Tons. 

a  Stationary  engine  and  rope,  and  when  all  were  at  the  top  the 
train  of  ten  or  a  dozen  cars  was  attached  to  a  little  puffing, 
wheezing  locomotive  without  a  cab,  without  a  brake,  and  whose 
tall  stack  sent  forth  volumes  of  smoke  mingled  with  red-hot 
cinders.  But  this  was  nothing  to  what  happened  when  the 
train,  rolling  along  at  a  rate  of  nine  miles  an  hour,  crossed  a 
bridge.  In  those  days  the  floors  and  trusses  of  such  structures 
were  protected  by  roofing  them  over  and  boarding  up  the  sides 
almost  to  the  eaves.  To  raise  the  roof  so  high  above  the  rail 
that  the  tall  stack  of  the  locomotive  might  pass  under  would 
have  been  costly.  The  stacks  therefore  were  jointed,  and  when 
crossing  a  bridge  the  upper  half  was  dropped  down  and  the 


41 


whole  train  was  enveloped  in  a  cloud  of  smoke  and  live  cinders. 

"A  ride  of  five  or  more  hours,  according  as  the  rails  were  dry 
or  wet,  brought  the  travelers  to  Lancaster,  where  they  spent 
the  night,  and  at  four  the  next  morning  were  up  and  ready 
to  go  on.  No  necessity  existed  for  so  early  a  start,  for  the  dis- 
tance from  Lancaster  to  Columbia  was  but  twelve  miles  and 
the  travelers  could  not  leave  Columbia  till  four  in  the  after- 
noon. But  as  they  had  been  fed  and  sheltered  at  the  hotel  at 
Lancaster,  it  seemed  fair  that  the^Red  Lion  at  Columbia  should 
have  them  at  breakfast  and  dinner. 

"At  Columbia  the  railroad  ended  and  the  canal  began,  and 
there,  every  week  day  about  four  in  the  afternoon,  a  few  blasts 
on  a  horn  gave  warning  that  the  packet  was  ready  to  start.  The 
canal  wound  along  the  east  bank  of  the  Susquehanna  to  a  point 
opposite  the  mouth  of  the  Juniata,  crossed  by  a  viaduct  to  the 
west  shore,  and  went  up  the  valley  of  the  Juniata  through  most 
beautiful  scenery  to  Hollidaysburg  at  the  foot  of  the  Alleghany 
Mountains.  There  canal  navigation  ended.  There  the  traveler 
spent  the  night  of  the  second  day  after  leaving  Lancaster  and 
early  next  morning  began  a  journey  which  none  but  the  boldest 


Passenger  Coach  Used  on  the  Portage  Railroad  Over  the  Alleghany 
Mountains  in  1S35. 


ventured  to  take  over  the  portage  railroad.  The  cars  were 
drawn  by  horses  from  Hollidaysburg  some  four  miles  to  the 
foot  of  inclined  plane  No.  lo.  An  endless  rope  passed  up  the 
middle  of  the  right-hand  track,  around  a  series  of  great  drums 
at  the  top,  down  the  left-hand  track  and  around  other  drums 
to  the  foot  of  the  right-hand  track.  Made  fast  to  this  rope,  the 
cars,  two  at  a  time,  were  pulled  up  the  incline  to  level  No. 
lo.     Along  this  they  were  drawn  by  horses  to  the  foot  of  in- 


42 

cline  No.  9,  and  by  repetitions  of  these  processes  to  the  summit 
of  level  No.  6,  which  crossed  the  crest  of  the  mountain. 

"The  traveler  v^as  then  fourteen  hundred  feet  above  the  canal 
at  Hollidaysburg,  and  was  about  to  be  lowered  eleven  hundred 
and  seventy-one  feet  by  another  series  of  inclined  planes  and 
levels  to  the  basin  of  the  Western  Canal  at  Johnstown.  Level 
No.  2  was  fourteen  miles  long,  passed  through  wild  and  beauti- 
ful mountain  scenery  and  the  longest  tunnel  in  the  country. 
Another  incline  and  another  level,  four  miles  long,  brought  the 
traveler  to  Johnstown.  There  a  change  was  made  from  railroad 
cars  to  a  canal  packet  boat,  which  passed  down  the  valleys 
of  the   Kiskiminetas  and  the  Alleghany  to   Pittsburg." 


This  description  of  a  journey  which  consumed  five  days  where 
the  Pennsylvania  covers  the  same  distance  in  seven  hours,  fairly 
represents  the  contrast  between  travel  only  70  years  ago  and 
today.  In  1851  the  State  commenced  the  construction  of  an- 
other line  to  avoid  the  ten  inclined  planes  across  the  AUe- 
ghanies,  but  in  1857  before  the  work  was  completed  sold  both 
the  old  and  the  new  portages  and  the  canal  sections  to  the 
Pennsylvania  Railroad  Company,  which  had  previously  built 
its  own  line  across  the  mountains.  In  1858  the  State  disposed 
of  its  remaining  canals  and  abandoned  its  system  of  transporta- 
tion. But  who  will  say  that  all  that  the  State  of  Pennsylvania 
paid  and  sank  in  its  experiments  with  government  ownership 
and  operation  of  this  great  transportation  undertaking  is  not 
properly  to  be  reckoned  as  a  part,  and  a  very  essential  part, 
of  the  cost  of  construction  of  American  railways.  The  fact 
that  the  road  and  canal  were  sold  for  a  song  compared  with 
their  cost,  and  that  scarcely  a  vestige  of  the  State  venture,  ex- 
cept right  of  way,  remains  of  service  to  the  public  today  does 
not  wipe  out  the  obligation  of  the  original  investment.  Be- 
sides, the  people  of  the  United  States  in  our  day  are  millions 
richer  for  the  pioneer  work  of  the  State  which  a  great  railway 
company  subsequently  had  to  reconstruct  or  abandon  to  perfect 
its  magnificent  service  across  the  Alleghanies. 


43 

How  subsequently  the  railroads  pushed  their  way  westward 
until  they  reached  the  Pacific  is  thus  summarized  in  a  para- 
graph from  Poor's  Manual  for  1870-71. 

"In  1-851  the  Erie  Railroad  was  opened  from  the  Hudson  to 
Lake  Erie — an  event  of  first  rate  importance  in  the  history  of 
our  railroad  enterprises.  In  the  following  year  the  completion 
of  the  Michigan  Central  and  Michigan  Southern  lines  carried 
the   railroad  system  of   the   country  as  far  west  as   Chicago.* 


The  Reconstructed  "Pioneer"  of  the  Chicago  &  Noethwesiern.    This 
10  Ton  Locomotive  Reached  Chicago  by  Schooner  Oct.  10, 1848. 

In  1854,  this  system  was  carried  to  the  Mississippi  River 
by  the  completion  of  the  Chicago  and  Rock  Island  Railroad.  In 
1853,  The  Baltimore  and  Ohio  Railroad  was  completed  to  the 
Ohio  River,  at  Wheeling.  In  1854,  the  Pennsylvania  Railroad 
was  completed  to  Pittsburg.  In  1856,  the  Illinois  Central  Rail- 
road was  completed  from  Chicago  to  the  Mississippi  River,  at 
Cairo.  The  Chicago,  Burlington  and  Quincy  Railroad  was 
opened  to  Quincy  in  1856.  The  Pittsburg,  Fort  Wayne  and 
Chicago,  extending  the  Pennsylvania  Railroad  to  Chicago,  was 
completed  in  1858.  In  1859,  the  Hannibal  and  St.  Joseph  Rail- 
road was  extended  from  the  Mississippi  to  the  Missouri.  In 
1866,  the  Cedar  Rapids  and  Missouri  was  completed  to  the 
Missouri  River  opposite  Omaha.  In  1867,  a  line  of  railroad  was 
formed  between  Chicago  and  St.  Paul,  Minnesota;  and  in  1869, 
by  the  completion  of  the  Pacific  Railroad — the  greatest  enter- 
prise of  the  kind  ever  yet  achieved — a  continuous  line  of  rail- 
way was  formed  from  the  Atlantic  to  the  Pacific  Ocean,  a  dis- 
tance of  nearly  3,500  miles." 

*Lake  Michigan  and  not  Chicago  was  the  original  objective  of  these  roads. 


44 

In  concluding  his  review  of  the  thirty  years  of  railway  achieve- 
ment in  America  prior  to  1870,  the  editor  of  Poor's  Manual  in 
that  year  said:  "The  early  roads,  as  already  rem.arked,  were 
neither  designed  nor  adapted  to  serve  the  purpose  of  commerce 
so  much  as  of  travel.  The  frail  works  first  constructed  were  by 
no  means  adequate  to  a  heavy  merchandise  traffic.  They  were 
constructed  with  longitudinal  sills  covered  with  thin  flat  bars 
of  iron.  With  such  structures,  neither  high  speed  nor  heavy 
trains  were  possible." 


And  yet  the  early  roads  were  as  adequate  to  the  traffic  of 
1870  as  the  roads  and  equipment  of  1870  would  be  to  the  traffic 
of  1907.  The  "early  roads"  revolutionized  the  transportation 
system  of  the  United  States;  they  made  its  remote  places  as- 
cessible ;  they  brought  millions  upon  millions  of  acres  of  wilder- 
ness, prairie  and  forest  within  the  radius  of  man's  dominion ; 
they  enabled  the  union  of  the  states  to  expand  from  ocean  to 
ocean;  they  brought  the  American  farm  and  factory  within 
trading  distance  of  foreign  markets ;  but  without  another  revolu- 
tion, in  which  they  have  been  reconstructed  from  Portland  to 
San  Diego,  the  railways  of  1870  would  no  more  have  been  able 
to  handle  the  traffic  of  1907,  they  have  been  chiefly  instrumental 
in  creating,  than  would  Peter  Cooper's  "Tom  Thumb"  have  been 
equal  to  hauling  a  passenger  train  of  1876  from  San  Francisco 
to  the  Centennial  at  Philadelphia. 

Wooden  bridges,  strap  rails  and  dirt  or  gravel  ballast  sufficed 
for  the  earlier  traffic  of  American  railways.  Before  1870  these 
had  given  place  to  iron  bridges,  56  lb.  iron  T  rails  and  some 
broken  stone  ballast  as  traffic  expanded.  And  these  in  turn 
have  been  superseded  by  steel  or  masonry  structures,  70  to  100 
lb.  steel  rails  and  more  carefully  prepared  road  beds  to  meet 
modern  demands. 

In  1835  it  would  have  taken  something  more  than  human 
prescience  to  have  foreseen  such  a  growth  as  is  shown  in  the 
following  table  of  way  freight  on  the  Camden  and  Amboy  rail- 
road, 1835-1869: 


45 


Way  Freight  on 

THE  Camden  and  Amboy  1835  ^o  1869. 

Year. 

Tons  Carried. 

Year. 

Tons  Carried. 

1835 

1,451 

3,356 

7,480 

20,515 

1855 

71,764 

1840                                 

I860 

83,543 

1845                           

1865 

182,541 

1850                         

1869 

429,029 

In  1906  the  United  Railroads  of  New  Jersey  division  of  the 
Pennsylvania  Railroad,  into  which  the  Camden  and  Amboy  was 
merged,  carried  a  total  of  30,732,210  tons. 

The  miracle  of  such  revolutions  in  ability  to  handle  traffic, 
common  throughout  the  country,  is  that  it  has  been  accomplished 
without  material  increase,  if  any,  to  the  net  capitalization  of 
American  railways  per  mile.  Millions  of  dollars  were  expended 
to  bring  the  original  roads  up  to  the  requirements  of  1870,  and 
other  millions  have  been  spent  to  bring  the  roads  of  1870  up 
to  the  standard  and  performance  of  today,  while  the  net  cap- 
italization stands  at  $54,421  per  mile  against  a  gross  of  $59,- 
^26  in  1870,  when  intercorporate  holdings  were  comparatively 
insignificant. 

With  1870  the  historical  review  of  American  railways  ends, 
and  the  period  of  comprehensive  statistics  begins.  This  may 
be  prefaced  with  a  table  showing  the  mileage  of  American 
railways  by  states  in  successive  decades: 


46 


Mileage  of  Railways  in  the  United  States  by  States 
Since  1841. 


1841. 


1850. 


I860. 


1870. 


1880. 


1890. 


1900. 


1905. 


Alabama 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Florida , 

Georgia 

Idaho 

Illinois 

Indiana. . ". 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts... 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire. 

New  Jersey 

New  York 

North  Carolina. . 
North  Dakota. . . 

Ohio 

Oregon 

Pennsylvania . . . 
Rhode  Island. . . 
South  Carolina. . 
South  Dakota. . . 


Texas 

Utah 

Vermont 

Virginia 

Washington 

West  Virginia 

Wisconsin 

Wyoming. 

Arizona 

District  of  Columbia. . . 

Indian  Territory 

New  Mexico 

Oklahoma 


United  States. 


46 


102 
39 


271 


22 


40 
11 

*259 
373 
138 


14 


53 
186 
538 

87 


36 


754 

50 

204 


223 


61 


6.535 


183 


402 
39 
21 

643 

111 
228 


78 

80 

245 

*259 

1,035 

342 

75 


467 

206 

1,361 

283 

575 

1,240 
68 


290 
384 


9,021 


743 
38 
23 

601 

127 

402 

1,420 

2,790 

2,163 

655 

534 
335 
472 
*386 
1,264 
779 

862 
817 


661 

560 

2,682 

937 

2,946 

2,598 
108 
973 

1,253 
307 

554 
1,379 

352 
905 


30,626 


1,157 
256 
925 
157 
742 
197 
446 

1,845 

4,823 

3,177 

2,683 

1,501 

1,017 

450 

786 

*671 

1,480 

1,638 

1,092 

990 

2,000 

705 

593 

736 

1,125 

3,928 

1,178 

t65 

3,538 

159 

4,656 

136 

1,139 

1,492 
711 
257 
614 

1,486 

387 

1,525 

459 


1,843 

859 
2,195 
1,570 

923 

275 

518 
2,459 

206 
7,851 
4,373 
5,400 
3,400 
1,530 

652 
1,005 
*1,040 
1,915 
3,938 
3,151 
1,127 
3,965 

106 
1,953 

739 
1,015 
1,684 
5,957 
1,486 
tl,225 
5,792 

508 
6,191 

210 
1.427 

1,843 

3,244 
842 
914 

1,893 
289 
691 

3,155 
512 
349 

J  289 

758 


52,922 


93,267 


3,147 

2,112 

4,147 

4,154 

1,007 

322 

2,389 

4.105 

941 

9,843 

5,891 

8,347 

8,806 

2,694 

1,657 

1,312 

1,138 

2,093 

6,788 

5.466 

2,292 

5.897 

2,181 

5,274 

924 

1,133 

2,034 

7,462 

2,904 

1,940 

7,719 

1,268 

8,307 

•205 

2,095 

2,485 

2,709 

7,911 

1,090 

913 

3,142 

1,698 

1,305 

5,468 

941 

1,061 

30 

1,046 

1,284 

167 


159,271 


4,219 
3,341 
5,744 
4,587 
1,023 

346 
3,272 
5,639 
1,261 
10,997 
6,469 
9,180 
8,719 
3,059 
2,824 
1,915 
1,376 
2,118 
8,193 
6,942 
2,919 
6,867 
3,010 
5,684 

909 
1,239 
2,237 
8,121 
3,808 
2,731 
8,774 
1,723 
10,277 

211 
2,794 
2,849 
3,124 
9,873 
1,447 
1,012 
3,729 
2,890 
2,198 
6,496 
1,228 
1,411 
31 
1,322 
1,752 

827 


192,940 


4,776 
4,183 
6,477 
5,027 
1.018 
335 
3,590 
6,442 
1,465 
11,830 
6,915 
9,871 
8,841 
3,286 
4,011 
2,028 
1,434 
2,119 
8,789 
7,992 
3,672 
8,039 
3,309 
5,833 
1,180 
1,267 
2,224 
8,336 
4,210 
3,233 
9,259 
1,813 
11,043 
212 
3,160 
3,067 
3,561 
11,983 
1,774 
1,058 
3,950 
3,367 
2.929 
7,211 
1,247 
1,665 
32 
2,638 
2,534 
2,625 


217,017 


United  States,  1906 222,340 

*lncludes  District  of  Columbia, 
flncludes  South  Dakota, 
t  Includes  Oklahoma. 


47 


IV 


PRESENT  CAPITALIZATION 


Amount. 


Per  Mile 
of  Line. 


Gross  capital  (including  duplications),  1906. 
Net  capital  (excluding  duplications),  1906. . 
Net  capital  per  mile  of  track 


$14,570,421,478 
11,671,940,649 


$67,936 
54,421 
37,746 


Nearly  all  discussions  of  railway  problems  have  been  con- 
fused and  the  value  of  their  conclusions  vitiatecj  by  fixing  popu- 
lar attention  on  the  gross  figures  of  capitalization,  income  and 
profits.  To  what  extent  this  is  calculated  to  mislead  the  un- 
wary and  deceive  the  uninformed,  may  be  judged  by  the  fore- 
going table. 

From  the  date  of  his  first  annual  report  on  the  "Statistics 
of  Railways  of  the  United  States"  (March  i,  1889)  down  to  his 
latest  report  (August  20,  1506),  Henry  C.  Adams,  Statistician 
of  the  Interstate  Commerce  Commission,  has  shown  the  live- 
liest interest  in  this  question  of  railway  capitalization.  Refer- 
ence has  already  been  made  to  his  early  views  on  the  imperative 
necessity  for  an  estimate  of  the  cost  and  value  of  the  railways, 
to  be  made  "by  competent  authority,  free  from  outside  influ- 
ences and  clothed  with  ample  power  for  the  investigation."  Co- 
incident with  this  expression  of  his  views  in  regard  to  cost,  in 
his  first  report  he  discussed  the  amount  and  character  of  capital 
invested  in  the  railwa}^  industry,  applying  the  term  "railway 
capital"  to  all  forms  of  property  "that  draws  its  revenues  from 
railway  operations."  This  he  found  to  consist  of  stock,  all  forms 
of  funded  debt  for  the  security  of  which  railway  plant  or  rail- 
way income  is  mortgaged,  and  the  floating  capital  necessary  to 
keep  fixed  investments  in  a  profitable  state  of  activity. 

Following  out  his  idea  that  this  capital  should  include  the 
property  that  drew  its  "revenues  from  railway  operations,"  Mr. 
Adams'  first  tables  included  under  the  term  capital  all  "stocks, 
bonds,  car  trust  obligations,  receivers'  certificates  and   current 


48 

liabilities."  In  his  explanation  of  his  course  in  including  cur- 
rent liabilities  in  his  classification,  he  said:  "Stocks  and  bonds 
make  up  fixed  investments.  They  represent  fixed  capital.  But 
fixed  capital  cannot  be  a  source  of  profit  except  through  the 
constant  application  of  circulating  capital."  This  circulating 
capital,  he  concluded,  was  fairly  represented  in  "current  lia- 
bilities," which  were  included  in  the  official  capitalization  tables 
until  1896,  when,  at  the  request  of  the  Association  of  American 
Railway  Accounting  Officers,  they  were  excluded  from  the  cap- 
ital account. 

As  early  as  1867  "Poor's  Manual  of  the  Railroads  of  the  United 
States"  had  attempted  to  give  the  capitalization  of  American 
railways,  then  estimated  to  be  $1,172,881,000  or  about  $40,000 
per  mile.  That  this  was  little  more  than  a  conscientious  guess 
was  quickly  demonstrated,  when,  in  the  fifth  issue  of  that  valu- 
able work,  for  the  first  time  anything  like  a  comprehensive 
summary  of  the  affairs  of  American  railways  was  made  acces- 
sible to  the  public.  Even  this  was  not  as  exhaustive  as  the 
publishers  of  the  Manual  hoped  to  make  it,  for  in  the  sixth 
series  they  apologized  for  the  "meagre  and  incomplete"  reports 
from  some  of  the  companies,  and  only  vouched  "for  the  cor- 
rectness of  our  (its)  own  statements  as  far  as  they  go." 


In  the  following  table  of  "Gross  Capitalization"  compiled 
from  Poor's  Manual  down  to  1888  and  the  official  Statistics  of 
Railways  since  then,  "floating  debt"  is  included  prior  to  1875 
and  excluded  thereafter.  The  figures  of  mileage  prior  to  those 
for  June  30,  1890,  include  road  operated  under  trackage  rights, 
which  were  excluded  by  Mr.  Adams  in  the  summaries  after 
that  year.  This  accounts  for  the  increase  in  capital  per  mile 
shown  in  the  official  figures  between  1889  and  1890.  This  table 
is  presented  for  comparative  purposes,  only,  and  not  as  properly 
representing  the  true  situation  at  any  period.  Its  defects,  how- 
ever, except  as  to  the  variations  noted,  are  common  to  all  years. 
The  returns  from  the  Manual  are  by  calendar  years,  those  from 
the  official  Statistics  by  fiscal  years : 


49 
GROSS  CAPITALIZATION. 

(Including  Stock,  Bonds,  Income  Bonds,  Equipment,  Trust  and  Miscellaneous  Obligations.) 


Year 


Miles  of 
Line. 


Total 
Capital. 


Capital 
per  Mile 
of  Line, 


1871 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 

1881 

1882 

1883 

1884 

1885 

1886 

1887 

1888  (a). 
1888  (b). 

1889 

1890 . . . . 

1891 

1892 

1893 

1894 

1895 

1896 

1897 

1898 

1899.... 
1900.... 
1901.... 
1902.... 
1903.... 
1904.... 
1905.... 
1906 


44 

57 

66 

69 

71 

73, 

74, 

78, 

79 

82, 

92 

104 

110 

115 

123 

125 

136 

145 

136 

153 

156 

161 

162 

169 

175 

177 

181 

183 

184 

187 

192 

195 

200 

205 

212 

216 

222 


,614 
,523 
,237 
,273 
,759 
,508 
,112 
,960 
,009 
,146 
,971 
,938 
,381 
,671 
,280 
,144 
,986 
,333 
,883 
,385 
,404 
,275 
,275 
,779 
,690 
,746 
,982 
,284 
,648 
,534 
,556 
,561 
154 
313 
,243 
973 
340 


$2,664,627,645 
3,159,423,057 
3,784,543,034 
4,221,763,594 
4,415,631,630 
4,468,591,935 
4,568,597,248 
4,590,048,793 
4,715,136,465 
5,239,548,318 
6,055,798,785 
6,692,998,547 
7,155,205,297 
7,373,967,813 
7,518,864,803 
7,810,125,828 
8,302,586,330 
8,977,758,747 
7,733,684,420 
8,574,046,742 
8,984,234,616 
9,290.915,439 
9,686,146,813 
9,894,625,239 
10,190,658,678 
10.346,754,229 
10,566,865,771 
10,635,008,074 
10,818,554,031 
11,033,954,898 
11,491,034,960 
11,688,147,091 
12,134,182,964 
12,599,990,258 
13,213,124,679 
13.805,258,121 
14,570,421,478 


Increase  per  mile  in  35  years 

Increase  per  mile  in  16  years  (official). 


$59,726 
55,116 
57,134 
60,425 
61,533 
60,790 
61,644 
58,131 
59,677 
63,783 
65,136 
63,780 
64,768 
63,749 
60,990 
62,409 
60,609 
61,704 
56,498 
55,892 
58,659 
59,006 
61,130 
59,729 
59,419 
59,650 
59,610 
59,620 
60,343 
60,556 
61,490 
61,531 
62,301 
63,186 
64,265 
65,926 
67,936 


8,210 
9.277 


(a)  Calendar  year,  Poor's  Manual. 

(b)  Year  ending  June  30,  Interstate  Commerce  Commission. 

It  is  obvious  that  if  the  mileage  of  track  rights  deducted 
from  the  miles  of  line  to  ascertain  the  capital  per  mile  in  the 
Interstate  Commerce  Commission  reports  could  have  been  de- 
ducted in  the  returns  from  Poor's  Manual,  the  capital  per  mile 
would  have  appeared  greater  than  is  shown  above  for  the  years 
down  to  1 888. 


50 

The  apparent  excess  of  capital  per  mile  in  the  returns  from 
Poor's  Manual  is  probably  due  to  an  even  greater  duplication 
of  capital  than  the  later  official  reports  contained. 

The  apparent  decrease  in  mileage  in  the  official  report  for 
1888  was  probably  due  to  the  incompleteness  of  the  first  reports 
to  the  Commission,  as  the  increase  in  the  succeeding  year  is  not 
warranted  by  the  new  construction. 


Although  valuable  as  showing  the  comparative  trend  of  rail- 
way capitalization,  owing  to  two  errors — ^one  of  omission  and 
the  other  of  inclusion — this  table  fails  to  afford  a  truthful  state- 
ment of  the  capital  situation  of  the  railways  at  any  time  during 
the  36  years  it  covers.  Neither  in  1871  nor  in  1906  does  it  show 
all  the  trackage  on  account  of  which  railway  capital  has  been 
expended,  while  during  the  whole  period  the  capital  is  unduly 
swelled  by  including  capital  invested  in  securities  of  other  rail- 
ways. 

Manifestly  the  growth  and  cost  of  American  railways  since 
1871  is  inadequately  expressed  in  the  increase  of  single  track 
mileage,  omitting  all  reference  to  the  simultaneous  increase  in 
miles  of  auxiliary  track  and  sidings,  to  say  nothing  of  the  ac- 
companying reconstruction  of  every  physical  feature  of  original 
lines.  Reserving  comment  on  this  last  illusive  item  of  cost  rep- 
resented in  capitalization,  to  be  discussed  in  another  connection, 
the  capital  cost  per  "mile  of  track,"  as  distinguished  from  mile 
of  line^  may  be  studied  to  advantage. 

Returns  for  "all  other  tracks"  are  first  given  in  Poor's  Manual 
for  1872,  where  they  amount  to  11,188  miles,  or  one  mile  of 
"other  track"  to  5.1  miles  of  line.  By  1880  the  mileage  of  "other 
track"  had  increased  to  21,977  ^^<^  bore  the  proportion  of  one 
to  3.7  miles  of  line. 

When  the  official  statistician  first  took  cognizance  of  "other 
track"  in  1889,  he  found  that  it  consisted  of  8,084  miles  of  sec- 
ond track,  722  miles  of  third  track,  531  miles  of  fourth  track, 
and  31,715  miles  of  yard  track,  sidings  and  spurs,  making  41,052 
miles  of  other  track;  or  a  proportion  of  one  to  3.7  miles  of  line 
— the  same  proportion  as  in  1880, — a  rather  remarkable,  albeit 
reassuring,  coincidence. 


61 

By  1895  the  total  of  "other  track"  officially  reported  had 
risen  to  55,528  miles,  or  a  proportion  of  one  to  3.2  miles  of  line; 
and  in  1906  it  had  increased  to  94,743  miles,  or  a  proportion  of 
one  to  2.3  miles  of  line. 

In  brief,  the  miles  of  auxiliary  track  during  the  period  for 
which  we  have  information  has  increased  twice  as  fast  as  miles 
of  single  track,  although  the  latter  in  the  meantime  has  almost 
quadrupled. 

In  the  matter  of  second  track  alone,  8  per  cent,  of  the  line 
mileage  of  the  United  States  is  double  tracked  now  against 
only  5  per  cent,  in  1889 — the  actual  second  track  mileage  hav- 
ing more  than  doubled. 

The  significance  of  these  facts  is  that  any  increase  there  may 
have  been  in  railway  capital  per  mile  during  the  last  thirty  years 
is  wholly  accounted  for  by  the  relatively  greater  increase  in 
"other  track"  mileage,  which  has  enabled  the  railways  to  meet 
the  advancing  tide  of  traffic. 


NET  CAPITALIZATION. 

Thus  far  we  have  dealt  with  gross  capitalization  and  what 
it  has  represented.  It  is  now  in  order  to  squeeze  the  duplica- 
tion out  of  that  gross  total.  Unfortunately,  prior  to  1889  the 
summaries  of  statistics  fail  to  disclose  to  what  extent  railway 
capitalization  was  duplicated  by  intercorporate  investments. 
That  it  was  extensive  is  proved  by  the  fact  that  in  1870  the 
Pennsylvania  Railroad  owned  stocks  and  bonds  of  other  cor- 
porations to  the  amount  of  $23,668,220 — a  sum  equal  to  more 
than  a  third  of  its  capital  stock  and  funded  obligations.  It  was 
not  until  well  along  in  the  nineties  that  the  New  York  Central 
became  heavily  interested  in  the  securities  of  other  companies, 
of  which  in   1906  it  held  $154,411,052. 

Since  1889  the  Interstate  Commerce  Commission  reports  have 
contained  tables  showing  the  amount  of  such  securities  owned 
by  all  the  railways.  In  that  year  these  amounted  to  $1,151,972,- 
901,  or  13.5  per  cent,  of  the  entire  outstanding  capital.  In 
1895,  this  had  risen  to  $1,447,181,534,  or  15  per  cent,  of  such 


52 


capital,  and  in  1906  to  $2,898,480,829,  or  slightly  less  than  20  per 
cent,  of  such  outstanding  stocks  and  bonds,  or  19  per  cent,  of 
the  total  capitalization  of  $14,570,421,478 — including  income 
bonds,  equipment  trust  obligations  and  miscellaneous  obliga- 
tions. 

How  this  capital  account  actually  stands  may  be  seen  at  a 
glance  in  the  following  table : 


Capital  Account  in  1906. 


Gross  Capital  Stock — 

Common 

Preferred 

Funded  Debt — 

Bonds 

Miscellaneous  obligations 

Income  bonds 

Equipment  trust  obligations 

Total  Gross  Capital 

From  which  deduct — 

Stock  owned  by  railway  corporations $2,257,175,799 

Bonds  owned  by  railway  corporations 641,305,030 

Total  stock  and  bonds  owned 

Net  capitalization 

Divided  by  Mileage — 

222,340  miles  of  line  less  7,865  trackage  rights  equals  214,475  miles. 
Net  Capital  per  Mile 


S5.403.001. 962 
1.400,758,131 

6,266,770,962 
973,647,924 
301,523,400 
224.719,099 


$14,570,421,478 


2.898,480.829 


$11,671,940,649 
$54,421 


"Current  Liabilities"  are  excluded  from  this  computation  as 
in  1905,  when  they  amounted  to  $953,319,866,  they  were  more 
than  offset  by  $1,014,288,239  "cash  and  current  assets,"  $149,- 
371,001  "materials  and  supplies,"  and  $128,588,790  "sinking 
funds  and  sundries."  (Vide  Interstate  Commerce  Commission's 
"Statistics  of  Railways"  1905,  page  99.) 

Applying  this  formula  to  the  data  since  the  figures  as  to  track- 
age rights  and  securities  owned  have  been  available — to  wit, 
1890 — ^^we  arrive  at  the  following  correct  statement  of  net  cap- 
italization of  American  railways  per  mile  of  line : 


53 


Net  Capitalization  Per  Mile  of  Line,  1890-1905. 


Year. 

Miles  of  Line 

Less  Trackage 

Rights. 

Net 
Capitalization. 

Capital 
per  MUe. 

1890 

153,160 
157,457 
158,452 
165,659 
171,505 
173,460 
177,264 
178,381 
179,285 
182,212 
186,876 
189,955 
194,767 
199,411 
205,604 
209,405 
214,475 

$7,577,327,615 

8,007,989,723 

8,294,689,760 

8,331,603,006 

8,646,600,008 

8,899.572,695 

9,065,518,857 

9,168,071,898 

9,297,167,776 

9,432,041,731 

9,547,984,611 

9,482,649,182 

9,925,664,171 

10,281,598,305 

10,711,794,078 

11,167,105,992 

11,671,940,649 

$49,473 

1891 

50,858 

1892                   

52  348 

1893       

50  293 

1894 

60  358 

1895 

51  421 

1896 

61,141 
51,396 
51,856 
61,215 
51,092 
49,925 
60,961 
51,559 
62,099 

1897 

1898 

1899.. 

1900 

1901 

1902 

1903 

1904 

1905 

53,328 
54,421 

1906 

Increase  per  mile  in  sixteen  years 

$4,948 

Comparing  this  increase  of  $4,948  per  mile  of  net  capital  with 
the  increase  of  gross  capital  for  the  same  period,  it  will  be  per- 
ceived that  by  applying  the  simple  touchstone  of  truth,  sup- 
plied by  the  official  figures,  no  less  than  $4,329  per  mile  of  the 
fictitious  water,  we  hear  so  much  about  in  railway  capitaliza- 
tion, is  not  and  never  has  been  there. 

Conclusive  as  these  figures  for  .1906  are  of  the  present  low 
and  reasonable  capitalization  of  American  railways,  and  while 
they  may  be  compared  instructively  with  similar  figures  as  to 
capital  cost  of  railways  in  other  countries,  they  are  susceptible 
of  further  rectification  before  they  are  finally  available  for  com- 
parison with  our  past  capital  per  mile. 


Attention  has  already  been  called  to  the  relatively  greater 
increase  of  second,  third,  fourth  and  other  track  and  sidings  (of 
which  there  was  less  than  12,000  miles  in  1872  and  nearly  95,000 
miles  in  1906)  over  single  track  mileage.  It  is  now  proposed 
to  show  the  comparative  course  of  railway  capitalization  in  the 
United  States  since  1889  as  applied  to  miles  of  track  operated — 
this  term  including  single  track,  second,  third,  fourth,  yard  track 
and  sidings — it  being  submitted  that  all  these  are  properly  in- 


54 


eluded  in  the  capital  investment,  and  it  being  a  matter  of  com- 
mon knowledge  that  much  of  the  auxiliary  track  represents  a 
higher  investment  per  mile  than  some  original  single  track  mile- 
age. 


Comparative  Summary  of  Net  Capitalization  Per  Mile  of 
Track  Operated,  Including  Single  Track,  Second  Track, 
Third  Track,  Fourth  Track  and  Yard  Track  and  Sidings, 
1889-1906. 


Year. 

Miles  of  All 

Tracks 
Operated. 

Net 
Capitalization. 

Capital  per 
Mile  of 
Track. 

1889 

191,001 
208,612 
216,149 
222,351 
230,137 
233,533 
.    233.275 
239,140 
242,013 
245,333 
250,142 
258.784 
265,352 
274,195 
283.821 
297.073 
306.796 
317,083 

$7,422,073,841 

7,577,327,615 

8,007,989,723 

8,294,689.760 

8,331,603,006 

8,646,600,008 

8,899,572,695 

9,065,518,857 

9,168,071,898 

9,297,167,776 

9,432,041,731 

9,557,984,611 

9.482.649,182 

9,925,664,171 

10,281,598,305 

10,711,794,078 

11,167,105,992 

11,671,940,649 

$38,911 
36  322 

1890 

1891 

37,048 

1892 

37,304 

1893 

35,768 

1894 

37,025 

1895 

38,150 

1896 

37.908 

1897 

37.882 

1898 

37  896 

1899     

37  307 

1900     

36  934 

1901 

35  735 

1902 

1903     

36,195 
36  225 

1904 

36  057 

1905 

36  399 

1906 

36,810 

Increase  per  mile  in  sixteen  years 

$    478 

1890-1906. 

In  this  table  the  increase  of  $4,948  in  net  capitalization  per 
mile  of  line  shown  for  the  fifteen  years  1890  to  1906  dwindles  to 
only  $478  per  mile  during  the  same  years,  when  the  increase  in 
auxiliary  track  is  taken  into  account.  Will  anyone  conversant 
with  the  practical  operation  of  railways  dissent  from  the  in- 
clusion of  auxiliary  tracks  in  the  cost  of  railways  at  any  stage 
of  their  development?  If  he  does,  let  him  calculate  what  the 
railways  of  the  United  States  in  1906  would  have  been  had  their 
auxiliary  tracks  been  increased  only  pro  rata,  as  they  did  be- 
tween 1880  and  1889.  We  have  already  seen  that  there  was  one 
mile  of  auxiliary  track  to  every  3.7  miles  of  line  in  1889.  Ap- 
plying this  ratio  to  the  single  track  mileage  of  1906  would  have 
provided  only  58,641  miles  of  auxiliary  track  against  a  reported 


55 


mileage  of  94,743.  The  difference,  36,102  miles,  involved  new 
construction  just  as  surely  as  in  the  building  of  original  lines. 
At  an  average  of  $10,000  per  mile  this  v^ould  require  a  capital 
expenditure  of  $361,020  000.  This  is  a  very  conservative  esti- 
mate because  most  of  this  auxiliary  construction  has  been  in 
the  territory  w^ith  the  densest  traffic  and  v^here  cost  of  yard 
space  near  terminals  was  highest. 

An  estimate  of  $361,020,000  disposes  of  more  than  one-third 
the  capitalization  represented  in  the  increase  of  $4,948  per  mile 
between  1890  and  1906  in  the  table  of  net  capitalization. 

The  remainder  is  far  more  than  represented  in  the  increase 
in  the  relative  number,  capacity  and  cost  of  equipment  per  mile 
during  the  same  period.  This  increase  in  number  is  shown  in 
the  followinsf  statement: 


1889 

1906 

Increase 

Number 

No.    per 
100  Miles 
Operated 

Number 

No.    per 
100  Miles 
Operated 

per    100 

Miles 

29,036 

25,665 

885,688 

18.6 

16.4 

577.3 

51,672 

42,262 

1,916,650 

23.2 

19.0 

861.8 

4.6 

2.6 

284.5 

The  increases  per  100  miles  of  line  operated  shown  in  the 
last  column  of  the  above  table  when  applied  to  the  mileage  of 
1906  produce  the  following  statement  of  the  increase  in  the 
capital  cost  of  equipment  over  what  it  would  Rave  been  had 
the  ratio  to  line  remained  the  same  as  in  1889: 

Excess  Over  the  Ratio  of  1889. 


Number 

Cost 
each 

Capital 
Cost 

10,225 

5,779 

632,443 

$12,000 

6,000 

900 

$122  700  000 

Passenger  cars   

34  674  000 

569,189  700 

Total 

$726,563,700 



This  sum  added  to  the  estimate  of  the  cost  of  the  excess  of 
auxiliary  track  over  the  proportionate  increase  during  the  period 
under  consideration  makes  a  total  of  $1,087,583,700  or  $5,072 
per  mile  of  line,  to  place  against  the  increase  of  $4,948  per  mile 
in  net  capitalization  shown  above. 


56 


While  these  estimates  are  not  scientifically  accurate,  they 
are  so  obviously  reasonable  as  to  afford  convincing  proof  that 
in  recent  years  there  has  been  an  actual  and  remarkable  shrink- 
age in  the  capitalization  of  American  railways  when  compared 
with  the  vast  sums  that  have  been  invested  in  their  extension, 
renewal,  improvement  and  re-equipment.  Furthermore,  it  should 
be  borne  in  mind  that  these  estimates,  as  to  the  cost  of  excess 
of  auxiliary  track  and  equipment,  have  not  taken  into  account 
the  capital  outlay  for  introducing  the  block  signal  system  on 
over  50,000  miles,  the  equipping  of  virtually  the  entire  service 
with  automatic  couplers  and  train  brakes — not  10%  of  the  cars 
being  so  equipped  prior  to  1889 — the  reduction  of  grades, 
straightening  of  alignment  and    relaying  of    thousands  of  miles 


Track  Elevation  in  Chicago  by  the  C  hicago  and  Western  Indiana  R.  R. 
Looking  South  From  49th  Street. 


of  old  line  with  heavier  rails,  more  ties  per  rail  and  better  bal- 
last. 

Nor  has  the  elimination  of  crossings  of  highways  and  railways 
at  grade  been  a  matter  of  insignificant  expense  to  the  railways. 
In  Massachusetts,  where  the  commonwealth  and  the  local  au- 
thorities bear  35%  of  the  cost,  the  Railroad  Commissioners  re- 
port that  this  work  since  1890  has  cost  the  railways  $16,299,664. 


57 


Nearly  three  times  this  sum  has  already  been  spent  by  the  rail- 
ways of  Illinois,  without  state  or  local  aid,  on  track  elevation  in 
Chicago  alone;  and  similar  work  laid  out  will  call  for  a  total 


Track  Elevation  in  Chicago  by  the  Chicago  and  Western  Indiana  R.  R. 
Looking  North  From  49th  Street. 


expenditure  of  $75,000,000,  an  amount  equal  to  the  Census  valu- 
ation of  all  the  railways  of  South  Carolina  in  1904  and  more 
than  the  construction  cost  of  all  the  railways  of  the  kingdom 
of  Norway. 

It  has  been  estimated  that  it  would  cost  nearly  half  a  billion 
dollars  to  do  away  with  the  8,733  grade  crossings  in  New  York 
State  alone ! 

Whether  the  railways  of  the  United  States  are  worth  their 
net  capitalization  as  of  June  30,  1906 — $11,671,940,649  or  $54,- 
421  per  mile  of  line  or  $37,746  per  mile  of  track — is  an  inquiry 
that  we  may  now  approach  from  several  different  points  of  view. 


58 


FIRST  COST  OF  CONSTRUCTION 

From  the  earliest  records,  and  despite  the  financial  shifts  to 
which  the  original  builders  of  American  railways  were  forced 
to  raise  capital,  the  fact  stands  but  through  all  the  statistics 
that  their  capital  and  cost  of  construction  were  never  far  apart. 
In  their  early  history  capital  invested  and  cost  of  construction 
were  often  treated  as  synonymous,  although  in  1870  it  was  said 
that  the  stocks  and  bonds  issued  by  all  the  companies  had  not 
probably  produced  more  than  seventy-five  cents  on  the  dollar. 
It  was  recognized  then,  though  often  forgotten  since,  that  the 
account  was  about  evenly  balanced  by  the  net  earnings,  which 
in  the  language  of  Poor's  Manual  ('70-71)  "have  been  put  into 
construction  without  any  increase  of  nominal  capital.  The  cost 
of  old  lines,  of  course,  constantly  increases,  but  the  average  for 
the  whole  country  is  kept  down  by  the  new  lines  which  are  being 
opened." 

In  a  table  of  comparative  statistics  for  the  year  1875,  accom- 
panying the  ninth  series  of  Poor's  Manual,  the  total  investment 
per  road  mile  of  American  railways  is  given  as  $62,725,  while 
the  "cost  of  works  per  road  mile"  is  placed  at  $58,874.  In  1880 
the  total  investment  including  floating  debt  was  $5,108,241,906 
and  the  "cost  of  railroad  and  equipment"  was  placed  at  $4,653,- 
609,297.  The  Manual  for  1886  thus  states  the  liabilities  of  the 
companies  owning  127,729  miles  of  line  in  1885  • 

LIABILITIES.  ASSETS. 


Capital  stock $3,817,697,832       Cost  R.  R.  and  Equipment . .  .$7,037,627,350 

Funded  debt 3,765,727,066    !   Real  estate,  stocks,  bonds  and 


j        other  investments 946,353,859 

Unfunded  debt 259,108,281     j   Cash,  bills  receivable,  current 

I       accounts,  etc 303,853,405 

Current  debt 231,040,215     :  

Total  assets $8,287,834,614 

Total  liabilities $8,073,573,394    1  Excess  Assets  over  Liabili- 
ties     214,261,220 


59 


This  statement  contains  the  unmistakable  indication  of  what 
was  susceptible  of  bookke^eping  proof,  as  soon  as  the  official 
statistician  segregated  the  items,  that  the  cost  of  Construction 
and  Equipment  of  American  railways  exceeded  their  net  cap- 
italization, as  is  shown  in  the  following  statement  of  these  items 
since  1890: 

Comparative  Statement  of  Net  Capitalization  and  Cost  of 
Construction  and  Equipment,  1890  to  1905. 


YEAR 

Net  Capitalization 

Per  MUe 

Cost  of  Construc- 
tion and 
Equipment 

Per  MUe 

1890 

$  7,577,327,615 

153,160  miles 
8,007,989,723 

157,457  miles 
8,294,689,760 

158,452  mUe's 
8,331,603,006 

165,659  miles 
8,646,600,008 

171,505  mUes 
8,899,572,695 

173,460  mUes 
9,065,518,857 

177,264  mUes 
9,168,071,898 

178,381  mUes 
9,297,167,776 

139,285  miles 
9,432,041,731 

182,212  miles 
9,547,984,611 

186,876  mUes 
9,482,649,182 

189,955  miles 
9,925,664,171 

194,411  mi  es 
10,281,598,305 

199*411  miles 
10,711,794,078 

205,604  miles 
11,167,105,992 

209,405  miles 

11,671,949,649 

214,475  miles 

$   49,473 
50,858 
52,348 
50,293 
50,416 
51,306 
51,029 
51,396 
51,856 
51,764 
51,092 
49,920 
51,055 
51,545 
52,099 
53,328 
54,421 

$  7,755,387,381 
(not  given) 
8,738,533,165 
(not  given) 
*  8,564,394,830 
143,518  miles 
8,937,545,760 
161,258  miles 
9,073,470,532 
164,008  mUes 
9,203,490,619 
167,741  mUes 
9,500,327.733 
173,860  miles 
9,709,329,228 
174,673  miles 
9,750,581,424 
170,000  mUes 
9,961,840,805 
177,638  mUes 
10,263,313,400 

181,437  miles 
10,405,095,085 

182,734  miles 
10,658,213,376 

187,442  miles 
10,973,494,903 

193,823  miles 
11,511,537,131 

198,841  miles 

11,951,348,949 

203,228  mUes 

1891 

1892 

S   59,674 
55.423 
65,317 
54,867 
54.643 
55,585 
57,336 
56,079 
56,511 
56,941 
56,861 
56.616 
57.893 
58.807 

1893 

1894 

1895 

1896 

1897 

1898 

1899 

1900 

1901 

1902 

1903 

1904 

1905 

1906          

♦This  decrease  is  explained  by  transfer  of  $541,000,000  included  in  "Cost  of  Road"  in 
1891  to  "Miscellaneous"  item  in  General  balance  Sheet  for  1892.  This  is  all  the  information 
vouchsafed  by  the  Statistician. 

Here  we  have  what  Mr.  Adams  calls  the  "bookkeeping  state- 
ment" of  the  cost  of  constructing  American  railways,  which  on 
its  face  shows  that  during  the  whole  period  mentioned  the  cost 
of  a  part  has  exceeded  the  net  capitalization  of  the  whole.  The 


60 

figures  in  small  type,  giving  the  mileage  for  each  year  respec- 
tively, show  that  this  discrepancy  in  mileage  represented  ran 
as  high  as  14,934  miles  in  1892  and  3,404  miles  at  its  low  mark 
in  1896. 

In  regard  to  the  annual  balance  sheets  of  the  railways,  from 
which  Mr.  Adams  compiled  these  figures  of  cost  of  construction, 
it  should  be  said  that  he  was  never  satisfied  that  they  accurately 
represented  actual  expenditures.  Different  roads  used  a  diversity 
of  methods  in  accounting.  In  1891  he  asked,  "Is  the  balance 
sheet  the  true  interpretation  of  the  standing  of  a  railway  com- 
pany that  expends  large  sums  of  money  on  its  roadbed,  and 
charges  such  expenditures  to  operating  expenses?"  Of  his  own 
general  balance  sheet  that  year,  however,  he  said,  "It  is  doubt- 
less more  nearly  accurate  than  any  similar  statement  ever  pub- 
lished." And  yet,  as  the  note  to  the  above  table  states,  it  con- 
tained a  small  item  of  $541,000,000  in  cost  of  construction  which 
was  transferred  to  "Miscellaneous"  account  in  the  following 
year. 

These  annual  balance  sheets  bear  internal  evidence  to  the 
fact  that  they  consistently  understated  the  cost  of  the  railway 
property.  For  instance,  in  1895  the  item  for  "cost  of  equip- 
ment" is  given  at  $571,570,946,  to  which  it  had  risen  gradually 
during  the  preceding  years.  By  1898  this  item  had  declined  to 
$526,347,372,  although  during  the  meantime  there  had  been  an 
actual  increase  of  535  locomotives,  483  passenger  cars,  and  55,- 
613  freight  cars  which  at  prevailing  prices  could  not  have  cost 
less  than  $50,000,000.  A  decrease  in  cost  of  equipment  as  given 
in  the  balance  sheet  in  the  face  of  such  facts  can  only  be  ex- 
plained by  assuming  that  during  the  period  of  receiverships  and 
reorganizations  that  prevailed  from  1894  to  1898,  account  ceased 
to  be  taken,  not  only  of  current  expenditures  for  additional 
equipment,  but  of  the  irrevocable  expenditures  previously 
made. 

The  word  "Receiver"  does  not  appear  in  the  exhaustive  in- 
dex to  the  report  of  the  Statistician  for  the  year  ending  June 
30,  1893.  The  report  for  the  year  following  notes,  "That  never 
in  the  history  of  transportation  in  the  United  States  has  such  a 


OF  THE 

UNIVERSITY 

OF 


61 


large  percentage  of  railway  mileage  been  under  the  control  of 
receiverships  as  on  June  30,  1894."  The  receivership  record  for 
that  and  the  next  five  years,  which  had  such  an  apparent  bear- 
ing on  the  shrinkage  of  the  cost  of  equipment,  was  as  follows: 


Railways  in  Receiver's  Hands,  1894-1899. 


YEAR 

Number  of 
Companies 

MUes 
Operated 

Capitalization 
Involved. 

1S94                    

192 
169 
151 
128 
94 
71 

40,818 
37,855 
30,475 
18,861 
12,744 
9,853 

$2,500,000  000 

1895           

2,439,144,503 

1896                 

1,892,331,464 

1897.          .- .... 

1,131,278,748 

1898               

661  575  318 

18S9   .                

585,878,251 

Formidable  as  is  the  array  of  wrecks  from  the  depression  of 
1894,  it  does  net  tell  the  whole  distressing  story.  During  the 
period  covered  in  the  above  table  no  less  than  308  roads  operat- 
ing 55,620  miles  of  line  and  having  an  aggregate  capitalization 
of  over  $3,133,000,000  went  into  receivers'  hands.  This  means 
that  during  six  years,  less  than  a  decade  ago,  nearly  one-third 
of  the  mileage  and  more  than  one-third  of  the  capitalized  invest- 
ment of  American  railways  had  to  seek  the  shelter  of  the  courts 
to  escape  the  effects  of  the  financial  and  industrial  storm  that 
swept  over  the  country. 

In  1900,  Avhen  the  railways  may  be  said  to  have  emerged  from 
the  .protectorship  of  the  courts,  the  report  of  the  Statistician 
credits  them  with  $588,361,029  for  "cost  of  equipment,''  or  only 
$16,790,083  more  than  in  1895,  although  in  the  meantime  there 
had  been  an  increase  of  1,967  locomotives,  1,601  passenger  cars, 
and  178,676  freight  cars,  representing  an  outlay  of  at  least  $135,- 
000,000,  irrespective  of  the  increased  cost  of  more  expensive 
replacements. 

From  which  it  is  evident  that  receiverships  have  had  the 
effect  not  on-v  of  squeezing  the  water  out  of  railway  capitaliza- 
tion but  of  excluding  expenditures  for  additional  equipment  from 
the   "bookkeeping   cost"    of   the   railways. 


62 


INCOMPLETE  RECORDS  OF  COST. 

There  are  as  many  reasons  why  it  is  impracticable  to  get  at 
the  actual  cost  of  the  railways  of  the  United  States  as  there 
are  railway  companies — and  the  last  official  report  gives  a  list 
of  2,167  ^^  them — ^to  say  nothing  of  those  which  have  become 
extinct  since  Carrol  of  Carrolton  turned  the  first  sod  for  the 
B.  and  O.  In  the  beginning  they  were  independent  corpora- 
tions subji-.ct  to  few  regulations  as  common  carriers  and  none 
as  to  their  methods  of  accounting.  The  cost  of  the  Quincy  tram- 
way is  a  mere  guess  of  "about  $34,000."  The  capital  subscribed 
for  building  the  61  miles  of  the  Camden  and  Amboy  Railroad 
in  1830  was  $4,000,000,  or  over  $65,000  per  mile.  But  this  in- 
cluded the  digging  a  canal.  The  so-called  "Mauch  Chunk  Rail- 
road," a  mere  3  ft.  6  in.  wooden  tramway  built  in  1827,  from 
Mauch  Chunk,  9  miles  to  the  coal  mines,  cost  $3,500  per  mile. 
We  know  to  a  cent  what  the  first  imported  Stephenson  loco- 
motive cost,  for  it  had  to  be  declared  at  the  Custom  House.  We 
are  told  that  it  cost  one  hundred  dollars  to  transport  a  ton  of 
freight  from  Buffalo  to  Albany  before  the  construction  of  the 
Erie  Canal,  and  know  approximately  that  it  cost  $97,000  per  mile 
to  build  and  improve  the  great  waterway  that  was  to  remove 
the  land  barrier  between  the  East  and  West.  But  we  have  no 
authoritative  knowledge  on  which  to  base  a  comprehensive 
guess  as  to  what  was  the  original  cost  of  the  instrumentality 
which,  after  a  generation  of  competition,  was  to  put  the  Erie 
Canal  out  of  business. 

Buried  in  the  archives  of  a  thousand  and  one  companies  might 
be  found  the  records  of  the  cost  of  their  original  lines  had 
anyone  the  time,  patience  and  interest  necessary  for  the  task. 
But  no  scrutiny  however  conscientious  and  searching  could 
possibly  separate  the  myriad  items  of  expenditures  for  improve- 
ments and  betterments  from  the  current  expenses  for  mainte- 
nance of  way,  structures  and  equipment  during  three-quarters 
of  a  centur}'-  of  railway  expansion. 

There  jwas  no  system  about  and  no  supervision  above  either 
the  beginnings  or  the  bookkeeping  of  railways  in  America.  They 
sprang  into  existence  in  response  to  the  demand  for  communica- 


63 

tion  between  settlements  on  the  tidewaters  and  water  routes 
of  the  country.  Canals  served  well  enough  to  carry  heavy  or 
bulky  goods,  but  were  tedious  for  passengers  and  in  the  North 
closed  to  traffic  in  winter.  The  railways  came  sporadically  wher- 
ever the  conditions  promised  profit,  they  were  financed  with 
difficulty  and  frequent  disappointments,  except  during  periods 
of  speculative  mania,  and  were  often  not  built  by  the  parties 
who  projected  them  and  paid  the  initial  cost  of  surveys  and  loca- 
tion. This  kind  of  costly  experience  has  lasted  all  through  the 
history  of  railways  at  all  stages  of  their  initiation,  construction, 
development  and  survival.  The  records  of  their  cost  have  been 
lost  or  rendered  valueless  in  the  numerous  financial  crises  and 
combinations  and  reorganizations  that  have  marked  and  scarred 
their  history. 

Originally  capitalized  at  $5,000,000,  by  1843,  when  188  miles 
had  been  built,  the  Baltimore  and  Ohio  had  cost  $7,623,600,  or 
over  $40,000  per  mile. 

The  Charleston  and  Hamburg  road  of  South  Carolina,  char- 
tered in  1829,  for  which  the  first  American  locomotives  placed 
in  actual  service  were  built,  is  said  to  have  cost  only  $1,750,000 
for  135  miles  completed  in  1834,  but  before  1840  it  was  sold  to 
the  Louisville,  Cincinnati  and  Charleston  Railroad  Company  for 
$2,400,000,  or  nearly  $18,000  per  mile.  It  was  an  unusually 
straight  and  level  road,  through  a  gently  undulating  country, 
and  was  cheaply  constructed  even  for  those  times. 

The  original  cost  of  the  New  England  roads  was  much 
higher;  that  of  the  Boston  and  Lowell,  commenced  in  1831  and 
completed  in  1835,  being  $1,505,645  up  to  November  30,  1836, 
or  $56,600  per  mile;  that  of  the  Boston  and  Worcester,  com- 
menced in  1831,  $1,700,000,  or  $38,700  per  mile — $250,000  being 
expended  for  real  estate,  right  of  way,  depot  buildings  and  ma- 
chinery; that  of  the  Great  Western  Railroad  (now  Boston  and 
Albany  west  of  Worcester)  was  estimated  at  $4,191,171,  or 
$36,104  per  mile ;  that  of  the  Boston  and  Providence,  $1,782,000, 
or  $43,460  per  mile. 

New  York,  because  of  its  faith  in  canals  and  waterways,  did 
not  enter  on  railway  building  with  so  much  enthusiasm  as  its 
sister  states  to  the  north  and  south.    In  the  eight  miles  of  the 


64 

Harlem  Railroad,  however,  from  near  the  City  Hall  "passing 
along  Center  and  Broome  Streets  and  the  Bowery  to  Fourth 
Avenue,  and  thence  to  Harlem  Strait,"  it  could  boast  the  most 
expensive  piece  of  railway  property  in  America  prior  to  1839. 
"The  whole  cost  of  the  work,  including  depots,  motive  and 
other  power,  etc.,  amounted  to  $1,100,000,  or  $137,500  per  mile." 

The  New  York  and  Hudson  River  Railroad  had  not  then 
been  projected,  but  the  construction  of  the  New  York  and  Al- 
bany Railroad  from  "Harlem  Strait"  to  Greenbush,  opposite 
Albany,  was  under  way  and  was  estimated  to  cost  $2,377,946, 
or  nearly  $17,000  per  mile,  "exclusive  of  land  damages,  ware- 
houses,  locomotives,   etc.,   etc." 

"The  Erie,"  commencing  on  the  Hudson  River  "at  Tappan, 
25  miles  above  New  York,"  had  been  constructed  as.  far  as 
Middletown  in  Orange  county  and  was  already  in  the  throes 
of  financial  difficulties.  This  "stupendous  work,"  as  it  was 
called,  when  completed  was  to  be  relinquished  "to  the  state 
at  cost,  with  interest  at  14  per  cent,  per  annum" — which  throws 
a  flood  of  light  on  the  value  of  money  for  railroad  construction 
previous  to  1839. 

The  Mohawk  and  Hudson  Railroad,  upon  which  the  De  Witt 
Clinton  made  its  trial  trip  in  1831,  connecting  Albany  with  the 
Erie  canal  at  Schenectady,  cost  $600,000,  or  $38,000  per  mile. 

Original  Cost  of  the  Pennsylvania. 

The  Columbia  and  Philadelphia  Railroad,  destined  to  be  the 
main  stem  of  the  great  Pennsylvania  system,  was  undertaken 
by  the  Keystone  state  to  form  a  part  of  the  great  thorough- 
fare to  Pittsburg  and  the  western  states.  A  description  of  the 
journey  in  early  days  has  been  given  in  the  preceding  pages. 
Its  construction  was  authorized  by  the  legislature  in  1828  and 
in  October,  1834,  it  was  completed  as  a  double  track  road  the 
entire  way  from  Philadelphia  to  Columbia  on  the  Susquehanna 
river,  where  the  travelers  betook  themselves  to  boats.  When 
in  1834  the  road  was  opened  for  public  use,  the  historian  says, 
"The  depots,  workshops  and  other  necessary  structures,  were 
subsequently  completed."  The  cost  of  the  road  without  these 
incidentals  in  1834  was  as  follows: 


65 


Cost  of  the  Columbia  and  Philadelphia  Railway  in  1834- 

8i.6o  Miles: 


Grading 

Culverts 

Viaducts  or  railway  bridges 

Roads  and  farm  bridges 

Fencing 

Railway  superstructure 

Building  and  Machinery 

Engineering  and  superintendence 

Damages 

Repairs 

Incidentals 

Alteration  to  accommodate  the  city  of  Lancaster. 


Total 13,754,577.20 


649,158.69 
74,113.94 

327,695.80 

42,055.00 

65,410.86 

,181,156.25 

111,787.12 

133,934.31 
54,833 .  29 
42,451.76 
11,980.18 
60,000.00 


To  which  there  was  subsequently  added  the  following  items 


Locomotive  engines 

Additional  buildings,  turnouts 

Retained  percentage  on  former  contracts 

New  ropes  at  inclined  planes 

Embankment  at  Maul's  bridge 

Renewal  of  wooden  track 

Rebuilding  Valley  Creek  bridge  destroyed  by  fire. 
New  road  to  avoid  Columbia  inclined  plane 


Grand  Total. 


Per  mile. 


327,203.41 

37,511.16 

5,134.08 

11,584.34 

1,796.34 

18,907.48 

17,218.13 

118,123.53 


$4,296,796.92 
53,047.00 


\  m| 

MM:^^:. 

^ 

^1 

f 

\f    ^i^^r     ■■>^-j^f^ 

^ 

■Pi* 

-        -        '               '     ";j 

First  Locomotive  Used   on  Pennsylvania  Railroad. 


In  the  details  of  these  accounts  it  appears  that  locomotives 
cost  $6,720  each,  and  the  cars,  which  were  the  property  of  pri- 
vate individuals,  $2,000  for  passenger  and  $275  for  freight  cars. 
Although  the  state  furnished  the  steam  motive  power,  provision 
was  made  for  horse  power  by  laying  a  "horse  path"  of  broken 


66 

stone  from  6  to  9  inches  deep.  The  owners  of  the  cars  paid 
toll  to  the  state  and  collected  4  cents  a  mile  from  passengers 
and  9-14/100  cents  per  mile  for  a  ton  of  goods. 

Two  items  in  the  above  statement  are  especially  instructive 
— that  for  alterations  to  accommodate  Lancaster  and  that  for 
the  new  road  to  avoid  Columbia  inclined  plane.  It  is  impossible 
to  estimate  the  cost  of  changes  made  in  American  railway  routes 
to  accommodate  various  communities,  or  of  new  construction  to 
remedy  original  misconstruction  in  levels  and  alignments,  as 
the  field  broadened. 

Cost  of  the  Alleghany  Portage  Road. 

What  was  known  as  the  Alleghany  Portage  Railroad  formed 
the  link  between  the  Pennsylvania  canal  system  at  Hollidays- 
burg  on  the  east  and  the  resumption  of  water  transportation 
at  Johnstown  on  the  west,  attaining  an  elevation  of  2491  feet 
above  the  Atlantic  Ocean.  The  viaduct  over  the  Conemaugh 
at  the  Horseshoe  bend,  described  as  a  "magnificent  structure," 
cost  $54,562.  The  general  statement .  of  the  cost  of  this  im- 
portant pioneer  work  was  as  follows: 


Grading 

Masonry 

First  track  of  Railway 

Second  track  of  Railway .• 

Building  machinery,  etc.,  at  planes  (first  set) 

Ten  stationary  engines  (second  ret) 

Buildings,  etc.,  for  second  set  of  engines 

Depots,  machine  shops,  water  stations,  weighing  machines  and  various  works 


Total 

Per  mile,  36.96  miles. 


$472,162. 59i 

116,402.64i 

430,716. 59i 

362.987. 50i 

151,923. 30i 

37,779.75 

21,048.59 

41,336. 66i 


$1,634,357,691 
44,545.00 


The  fractions  of  a  cent  in  this  statement  illustrate  the  exact- 
ness with  which  the  state  kept  its  books  in  those  days,  but 
neglects  to  throw  any  light  on  the  cost  of  the  four  locomotives 
used  on  the  "long  level"  of  the  road.  Nor  does  the  statement 
cover  office  expenses,  engineering  and  extra  allowances  made 
to  contractors  by  the  legislature.  This  work  was  completed  in 
1834. 

The  initial  cost  of  the  Philadelphia  and  Reading  Railroad,  in- 
cluding the  extension  to  Pottsville,  95  miles,  was  $5,000,000, 
or  $52,630  per  mile. 


67 


Cost  in  the  Forties. 

In  1840,  when  there  were  2,818  miles  of  railway  in  the  United 
States,  an  estimate  based  on  earnings  and  on  current  publica- 
tions would  indicate  that  the  capital  cost,  ten  years  after  the 
opening  of  the  Baltimore  and  Ohio  road,  of  all  the  railways  in 
the  country  was  less  than  $66,000,000  or  about  $23,000  a  mile. 
This  estimate,  judged  by  figures  given  above,  is  probably  far 
below  the  mark.  Money  for  such  risky  business  was  worth 
at    least    10    per    cent,    at    that    time.     More    than    half    of 


Freight  Engine,  1844. 

the  mileage  of  1840  was  in  the  Middle  States,  about  one- 
fifth  of  it  in  the  New  England  States  and  not  one  hun- 
dred miles  of  it  was  west  of  the  Alleghanies.  It  was  of  the 
most  primitive  and  temporary  construction,  laid  with  the  strap 
rail  already  described  and  built  piecemeal  to  connect  established 
communities  at  the  least  possible  cost.  Already  the  railways 
had  been  crippled  and  their  extension  retarded  by  the  financial 
panic  of  1837.  One  of  the  effects  of  this  business  recession  was 
the  financial  embarrassment  of  the  founder  of  the  Baldwin  Loco- 
motive Works,  who  was  forced  to  a  settlement  with  his  cred- 
itors before  continuing  his  great  industry,  which  has  been  so 
intimately  associated  with  the  fortunes  of  American  railways 
since   their  infancy. 


68 


On  December  6,  1845,  ^  committee  of  citizens  of  Vicksburg 
appointed  to  solicit  charters  from  the  legislatures  of  Alabama 
and  Mississippi  for  the  Charleston  and  Western  Railroad  (Ala- 
bama and  Vicksburg  now)  made  the  following  statement  in  their 
report : 

"Twenty  years  ago,  a  short  road  at  Quincy,  to  carry  marble, 
was  all  the  pioneer  we  had.  Now,  we  have  nearly  4,000  miles 
of  railroad  in  actual  daily  operation  in  the  United  States,  and 
a  great  deal  more  in  the  rest  of  the  world.  The  materials  of 
experience  are  therefore  sufficiently  abundant.  The  cost  of 
79  railroads  in  the  United  States  is  given  in  the  table  published 
in  the  American  Railroad  Journal.  The  aggregate  length  of 
them  is  3,723  miles,  and  the  cost  is  $109,841,460;  or  $29,325.85 
per  mile.  | 

"In  the  Carolinas  and  Georgia  785J  miles  cost  but  $14,063,175, 
or  $17,919  per  m.ile;  those  of  North  Carolina  and  Georgia  583J 
miles  long,  cost  $8,391,723;  or  $14,387.72  per  mile;  those  of 
Georgia  337 J  miles,  cost  $5,231,723,  or  $15,489  per  mile;  the 
Central  Railroad  in  Georgia,  190J:  miles,  cost  $2,551,723;  or 
$13,570.72  per  mile;  and  that  part  of  the  Georgia  Railroad  of 
65  miles,  v/hich  has  been  constructed  of  late  years,  is  said  to 
have  cost  less  than  $12,000  per  mile,  including  an  edge  rail; 
or,  as  commonly  called,  a  T-rail. 

"The  residue  of  the  railroads  on  the  list,  in  the  northern  and 


Baldwin  Fast  Passenger  Engine,  1848 


eastern  states,  amounting  to  2,937^  miles  in  length,  cost  $95,- 
788,295;  or  $32,633.23  per  mile. 

"The  reason  of  this  difference  of  cost,  in  favor  of  the  southern 


69 

states,  is  mainly  in  the  abundance  and  cheapness  of  timber,  the 
absence  of  rock  excavations,  and  the  low  cost  of  right  of  way." 
The  company  applying  for  these  charters  was  to  fix  and  pub- 
lish its  tolls  not  subject  to  change  "oftener  than  once  a  year," 
with  a  restriction  that  the  annual  profit  should  not  exceed  "25 
per  cent."  In  those  days  legislators  were  only  too  glad  to 
promise  the  railways  the  earth  if  investors  could  thereby  be 
tempted  to  furnish  capital  to  provide  much  needed  transporta- 
tion. 

Cost  in  the  Fifties. 

By  1850  the  mxileage  of  American  railways  had  risen  to  9,021 
miles  and  their  earnings  were  in  the  neighborhood  of  $4,000 
a  mile.  An  estimate  places  their  cost  at  this  period  at  $2^2,' 
000,000,  or  over  $30,000  per  mile.  The  increase  in  cost  per 
mile  between  1840  and  1850  was  largely  due  to  the  reconstruc- 
tion of  entire  lines  to  carry  the  unexpected  burden  of  freight 
which  was  beginning  to  leave  the  canals  and  waterways  for 
the  more  expeditious  and  accessible  railways.  During  this 
decade  eastern  roads  began  replacing  their  strap  rails  with  T- 
rails, — selling  their  strap  rails  to  western  roads  for  whatever 
they  could  get,  up  as  high  as  $50  a  ton — about  30  tons  being  the 
average  weight  to  the  mile.  At  this  date  there  were  only  131 
miles  of  rails  west  of  Indiana,  of  which  Illinois  boasted  iii  and 
Wisconsin  20.  It  was  not  until  five  years  later  that  the  great 
commonwealth  of  Iowa  appeared  in  a  table  of  railway  states. 
Chicago  had  not  then  been  reached  by  rail  from  the  East,  the 
original  Michigan  Central  terminating  at  New  Buffalo,  whence 
its  business  was  transported  by  steamers  across  Lake  Michi- 
gan. Between  1848  and  1850  the  railway  mileage  west  of  the 
Alleghanies  was  almost  doubled  and  then  ensued  that  rush  of 
construction  which  only  suffered  temporary  abatement  during 
the  tr3ang  days  of  the  Civil  War. 

I  deem  myself  fortunate,  for  the  purpose  of  this  record,  that 
there  has  come  into  my  possession  a  collection  of  engineers' 
reports,  covering  the  period  between  1846  and  1854,  giving  valu- 
able data  of  estimates  and  cost  of  railway  construction  when  the 
pioneer  work  was  being  pushed  with  great  energy  into  virgin 


70 


territory.  For  the  benefit  of  the  stockholders  of  a  projected 
Canadian  road  one  of  these  reports  contains  the  following  statis- 
tics of  the  principal  railroads  of  the  two  well  settled  states  of 
New  York  and  Massachusetts  in  1851 : 

New  York  and  Massachusetts  Railways  in  185  i. 


ITEM. 


New  York.  Massachusetts. 


Length  of  mam  lines,  miles 

Length  of  double  track,  miles 

Length  of  branches,  miles 

Aggregate  length  as  single  line 

Total  cost 

Average  cost  per  mile,  single  line 

Average  speed  passenger  trains,  miles  per  hour. . . 

Average  speed  freight  trains,  miles  per  hour 

Average  charge  per  mile,  per  passenger,  first  class 

Total  miles  run  by  trains 

Total  passengers  carried  in  cars 

Total  passengers  carried  one  mile 

Total  tons  of  freight  carried  in  cars 

Total  tons  of  freight  carried  one  mile 

Average  number  of  passengers  per  train 

Average  number  of  tons  freight  per  train 

Total  earnings 

Earnings  per  mile  per  annum 

Earnings  per  mile  run 

Total  expenses 

Expenses  per  mile  run 

Ratio  expenses  to  income 

Net  profit 

Profit  on  cost 


1,703 

1,005 

346 

267 

56 

110 

1,992 

1,293 

$91,423,040 

$65,855,315 

45,895 

50,930 

32        . 

24 

17 

13 

3  cents 

3  cents 

4,738,784 

4,726,017 

8,045,708 

9,569,470 

247,878,040 

157,202,590 

1,274,649 

2,499,953 

75,867,747 

76,244,739 

66i 

55 

40i 

50 

$10,192,445 

$8,786,440 

5,795 

9,030 

2.10 

1.78 

4,626,535 

4,751,830 

90  cents 

96    cents 

45.4% 

53% 

$5,566,910 

$4,034,610 

6.1% 

6.1% 

If  the  cost  per  mile  had  been  calculated  in  the  usual  way, 
viz.,  per  mile  of  line,  the  cost  in  New  York  would  have  amounted 
to  $52,000  per  mile  and  in  Massachusetts  to  $59,000. 

Although  the  rate  per  ton  mile  is  not  given,  it  is  clear  that 
it  must  have  been  approximately  3.67  cents,  or  not  far  from 
5  times  the  present  rate.  Three-quarters  of  the  earnings  was 
from  passenger  traffic.  In  1906  over  70  per  cent,  of  the  gross 
earnings  of  American  railways  was  from  freight. 

The  ratio  of  expenses  to  income  of  45.4  per  cent,  in  New 
York,  or  even  53  in  Massachusetts,  half  a  century  ago  may  well 
fill  the  minds  of  present  day  operating  officials  with  envy.  But 
they  could  do  better  if  rates  and  fares  had  not  been  so  merci- 
lessly slashed  through  the  periods  of  fierce  competition  that  have 
intervened  since  1851. 


71 


Details  for  several  New  England  roads,  whose  names  are  still 
familiar  to  American  ears,  throwing  further  light  upon  the  sub- 
ject we  are  considering,  appear  in  another  tabular  statement, 
from  which  the  following  is  extracted: 


Average 

Ratio  of 

Mileage 

cost  per 

expense  to 

mile 

earnings 

25.77 

$88,000 

65 

74.26 

61,565 

48 

41.00 

67,000 

47 

44.63 

88,570 

55 

50.93 

66,620 

60 

37.25 

63,710 

75 

155.40 

80,065 

44 

Per  Cent 
of  profit 
on    cost 


Boston  and  Lowell , 

Boston  and  Maine 

Boston  and  Providence 

Boston  and  "Worcester 

Fitchburg 

Old  Colony 

Western  (later  Boston  and  Albany) 


7i 

8 

7i 

6f 

5f 

3i 

7i 


In  185 1  the  Western  Railroad  was  found  by  a  committee  of 
stockholders  to  be  in  need  of  heavy  expenditures  to  make  good 
depreciation  in  structures  and  equipment  all  the  way  from 
Worcester  to  Albany.  Over  $81,000  was  needed  to  renew  the 
wooden  bridges  that  had  not  then  been  replaced  with  iron  or 
steel  structures.  Rails  bought  in  this  country  had  "already 
manifested  great  inferiority  of  quality,"  and  provision  had  to 
be  made  for  their  replacement  at  $45  per  ton,  100  tons  to  the 
mile.  Stati(m  buildings  were  out  of  repair.  "The  original  stock 
of  Engines  furnished  for  the  road  was,  for  the  most  part,  both 
as  to  power  and  efficiency  inadequate  to  its  business;"  so  new 
ones  were  purchased  raising  the  expenditures  •  for  locomotives 
to  $672,739,  with  only  59  of  all  descriptions  in  service.  This 
made  each  engine  represent  a  cost  of  over  $11,000.  About  one- 
fifth  of  the  cars  in  the  passenger  service  had  only  four  wheels. 
A  similar  proportion  of  "merchandise  cars"  were  in  the  same 
primitive  iix.  For  906  of  these  the  amount  of  $532,025  had 
been  expended,  which  is  nearly  $600  per  car,  and  the  committee 
recommended  an  "extraordinary  expenditure"  of  $48,704  to  re- 
place worn  out  "with  entire  new  cars."  About  the  only  thing 
that  had  not  suffered  depreciation  was  the  value  of  the  land 
belonging  to  the  corporation.  This  the  committee  found  "cer- 
tainly had  not."  Even  after  writing  off  $216,531  for  deprecia- 
tion, the  committee  found  that  the  stocks  and  bonds  amounting 


72 


to  $10,469,520,  only  exceeded  its  assets,  not  counting  the  appre- 
ciation of  its  real  estate,  by  $88,409. 


The  estimates  of  the  chief  engineer  of  the  Cleveland  and 
Pittsburgh  Railroad  for  the  99.84  miles  from  Cleveland  to 
Wellsville  on  the  Ohio  river  afford  an  instructive  illustration 
of  the  cost  of  building  a  railway  in  what  was  then  the  "far 
west/'  For  one  mile  of  superstructure  "with  H  or  inverted  T- 
rail  weighing  65  pounds  to  the  yard,"  the  estimate  was  as  fol- 
lows : 

Cost  of  the  Cleveland  and  Pittsburgh. 


Ballast  or  gravelling  for  foundation 

10,560  lineal  feet  of  ground  sills  4  x  12  inches,  4  cents  per  foot 
2,112  lineal  feet  cross  ties,  each  8  feet,  6  inches  long,  7x8 

inches,  at  16  cents  per  tie 

4,224  spikes  for  cross  ties,  1,050  lbs.,  at  6  cents  per  lb 

Labor  laying  timber 

103  tons  of  iron  (H  or  inverted  T  rails,  weighing  65  lbs.  pei 

yard),  at  $63  per  ton 

590  chairs,  each  15  lbs.,  8,850  lbs,  at  3i  cents  per  lb 

1,180  bolts  for  fastening  chairs,  at  10  cents 

7,258  spikes  for  rails,  4,542  lbs.  at  6  cents  per  lb 

Labor  laying  iron,  etc 

Total 


Per  MUe. 
700.00 
422.40 

337.92 

63.00 

260.00 

5,489.00 
309.75 
118.00 
272.52 
240.00 


$9,212.59 


The  estimate  for  grading,  masonry  and  bridging  was  $581,- 
320  and  for  6  miles  of  "turnouts"  at  $12,000  per  mile,  $72,000. 
Only  $30,000  was  estimated  for  land  damages  and  8  per  cent, 
was  allowed  for  contingencies.  The  total  estimate  including 
$328,000  for  equipment,  stations,  shops,  etc.,  was  $2,076,201  or 
$21,000  per  mile.  The  provision  for  rolling  stock  was  as  fol- 
lows: 


12  Locomotives  and  tenders  at  $7,500 
24  Passenger  cars  at  $1 ,500 , 

120  Freight  cars  at  $500 

120  Freight  cars  at  $333 

Total 


$90,000 
36,000 
60,000 
40,000 


$226,000 


In  its  charter  as  amended  in   1845  the  Cleveland  and  Pitts- 
burgh  Railroad   was   authorized  to   demand   and   receive  "four 


73 

cents  per  mile'  for  passengers,  and  "not  more  than  eight  cents 
per  mile  for  freight." 

When  the  road  was  finally  completed  in  1853,  the  estimated 
cost  had  been  exceeded  by  nearly  a  million.  Real  estate  for 
which  $30,000  was  estimated  was  already  valued  at  $164,823. 
Nearly  half  the  capital  had  been  obtained  through  subscription 
to  stock  and  $221,650  charges  had  been  incurred  in  the  sale  of 
the  Company  bonds.  The  Company  earned  dividends  from  the 
start,  which  were  paid  in  stock,  the  cash  being  put  into  con- 
struction, "instead  of  borrowing  funds  for  carrying  on  that 
work,"  as  the  report  states.* 

This  road  played  a  pioneer  part  in  the  building  of  the  West 
and  is  now  a  very  important  link  in  the  Pennsylvania  system 
west  of  Pittsburgh. 


Contemporaneous  with  the  building  of  the  Cleveland  and 
Pittsburgh  other  railway  pioneers  were  pushing  the  construc- 
tion of  the  Toledo,  Norwalk  and  Cleveland  Railroad,  now  a  part 
of  the  Lake  Shore  and  Michigan  Southern,  and  in  the  language 
of  their  first  annual  report  (1852)  "were  obliged  to  submit  to 
some  sacrifices  on  our  stocks  and  bonds  in  order  to  provide  the 
means  of  payment."  The  original  cost  of  this  road  and  also  of 
the  Ohio  section  of  the  Cleveland  and  Buffalo  Railroad  was  in 
the  neighborhood  of  $20,000  per  mile.  The  rails  (65  lb.  to  the 
yard)  for  this  road  cost  $36.76  per  ton,  with  $6  added  for  freight, 
passenger  engines  $8,000  each,  freight  engines  $9,500,  passen- 
ger cars,  1st  class,  $2,200,  2nd  class  and  postoffice  cars,  $1,200, 
freight  cars  $575  to  $700.  A  modern  postal  car  costs  from  $6,000 
upwards. 

In  a  report  on  the  preliminary  surveys  of  the  Cleveland,  Co- 
lumbus and  Cincinnati  Railroad  (1846)  there  is  an  interesting 
discussion  as  to  the  merits  of  the  T  and  Plate  rail.  The  dif- 
ference in  cost  was  no  less  than  $4,164  per  mile,  for  at  that 
early  date  56-lb.  iron  rails  cost  $80  per  ton  delivered  in  Cleve- 
land.     Four  wheeled  freight  cars   cost    $375    each.     Light    is 

*This  was    regarded  as   sound  "economical    policy,"  and  the  sequel  has  proved  that 
it  was. 


74 

thrown  on  the  general  cost  of  railways  in  those  days  by  the 
statement  of  the  engineer  in  chief  that  the  road  from  Cleveland 
to  Columbus,  owing  to  the  small  expense  for  grading,  timber, 
right  of  way,  etc.,  "may  be  made  at  from  one-third  to  one- 
half  the  expense  of  such  roads  now  existing  in  the  United 
States."  As  his  estimate  for  the  Cleveland  to  Columbus  road 
was  over  $15,000  per  mile,  he  placed  the  cost  of  other  roads 
from  $30,000  to  $45,000  a  mile,  or  considerably  below  the  New 
York  and  Massachusetts  average.  The  report  of  this  engineer, 
C.  Williams,  lays  stress  on  the  "creative  power"  of  a  railway, 
its  "ability  to  produce  business,  that  before  did  not  exist,  and 
would  not,  but  for  the  means  of  getting  promptly  and  cheaply 
to  market." 

The  charter  of  this  company,  as  amended  in  1845,  grants  to 
it  "power  to  demand  and  receive  for  the  transportation  of  per- 
sons and  property  over  said  railroad  or  any  part  thereof,  such 
rates  as  the  directors  of  said  oompany  may  deem  reasonable." 


The  prospectuses  and  preliminary  reports  of  the  engineers  of 
this  period  almost  ignore  Chicago  and  the  Northwest  as  an 
objective.  The  Pennsylvania  system  was  already  making  its 
way  by  "links  in  the  Great  Central  Route  to  St.  Louis."  The 
engineer's  report  on  the  third  link,  the  Bellefontaine  and  In- 
diana Railroad,  was  not  wholly  oblivious  to  the  northwestern 
possibilities  when  he  wrote,  "I  cannot  close  this  branch  of  my 
report  without  referring  to  your  communication  with  the  great 
northwest.  The  railroad  now  under  consideration  from  Indian- 
apolis to  LaFayette  is  on  a  direct  line  towards  Chicago,  and 
it  is  intended  to  open  a  continuous  line  by  that  route.  At  Chi- 
cago it  will  meet  the  railroad  from  Galena." 


How  roads  were  financed  in  those  days  is  suggested  in  a 
single  paragraph  in  the  first  "exhibit"  of  the  Columbia,  Piqua 
and  Indiana  Railroad  (now  a  division  of  the  Pittsburgh,  Cin- 
cinnati, Chicago  and  St.  Louis  Railway),  which  says: 

"The  Company  have  secured  the  right  of  way  for  nearly  the 
entire  road  (102  miles)  which  is  estimated  to  be  worth  $75,000. 


75 

Its  entire  cost  will  not  exceed  $30,000,  one-half  of  which  will 
be  liquidated  by  the  stock  ^of  the  company  at  par.  The  prop- 
erty and  grounds  for  depots,  station  houses  and  machine  shops, 
belonging  to  the  Company,  have  been  acquired  by  donation 
or  subscription  to  the  capital  stock  of  the  Company,  and  are 
valued  at  $50,000." 

The  idea  that  only  roads  in  the  east  represented  an  invest- 
ment by  stockholders  is  refuted  by  every  one  of  these  reports 
which  contain  statements  similar  in  effect  to  the  following  from 
the  exhibit  just  cited: 

Ways  and  Means. 


Subscriptions  to  capital  stock  by  counties  and  townships. 

Subscriptions  in  cash  by  individuals 

Subscriptions  in  lands 


Add  issue  of  first  mortgage. 
Total 


$238,000 
629,500 
100.000 


$    967,500 
600,000 


$1,567,500 


The  bonds  bore  interest  at  7  per  cent,  and  the  first  $140,000 
were   disposed  of  at  par. 

Right  of  way  "in  most  cases  was  conferred  voluntarily,  the 
citizens  through  whose  property  the  road  passes  acting  in  the 
spirit  of  men  who  appreciate  the  advantages  to  accrue  to  them- 
selves, as  well  as  the  public,  from  the  construction  of  the  road." 
And  well  they  might,  for  every  railroad  built  in  those  days  im- 
mediately doubled,  and  often  quadrupled,  the  value  of  the  land 
through  which  it  passed. 


Beginning  in  1850,  railway  building  was  assisted  and  stimu- 
lated by  land  grants  in  portions  of  the  country  least  able  to 
provide  profitable  traffic.  Figures  relating  to  these  are  very 
incomplete,  but  in  1897  it  was  estimated  that  patents  had  been 
issued  for  87,915,326  acres.  The  government  lost  nothing  by 
these  grants,  as  the  price  of  the  alternate  sections  it  retained  was 
increased  from  $1.25  to  $2.50  per  acre.  Lands  so  obtained  were 
disposed  of  by  the  railways  to  settlers  as  rapidly  as  possible 
and  at  reasonable  prices.    Professor  John  Bell  Sanborn,  in  Bui- 


76 

letin  No.  30  of  the  University  of  Wisconsin  (1899),  says  that 
these  "lands  have  not  been  the  source  of  w^ealth  to  the  roads 
that  it  is  commonly  supposed.  Even  in  the  case  of  the  largest 
grants  the  balance  for  the  whole  period  is  quite  small  and  in 
many  cases  the  land  departments  are  now  a  source  of  expense 
rather  than  of  revenue."  The  average  price  obtained  has  been 
under  $10  an  acre.  "Comparing  the  building  of  the  roads  which 
received  land  grants,"  says  Professor  Sanborn,  "with  those  that 
did  not,  it  seems  that  there  was  no  particular  need  for  most  of 
the  grants.  Unaided  roads  were  built  along  similar  routes  even 
faster  than  aided  ones.  The  great  transcontinental  roads,  how- 
ever, probably  needed  the  assistance  of  aid  in  the  shape  of  land 
or  bonds  to  secure  their  construction  at  the  time  they  were 
built." 

Whatever  the  value  of  these  land  grants,  it  went  to  swell  the 
total  irrevocably  invested  in  American  railways.  In  compar- 
atively few  instances,  as  mentioned  in  the  succeeding  paragraph, 
were  stocks  or  bonds  issued  to  represent  the  millions  invested 
in  railways  through  these  grants  and  public  and  private  dona- 
tion of  right  of  way,  etc. 


The  first  annual  "exhibit"  of  the  engineer  of  the  Cincinnati, 
Union  and  Ft.  Wayne  Company  (now  a  part  of  the  Grand 
Rapids  and  Indiana)  sheds  instructive  light  on  the  taking  of  land 
for  stock,  in  these  terms: 

"The  company  has  taken  lands  in  subscription  for  stock 
under  the  provisions  of  the  law  authorizing  the  same.  They 
were  not  taken,  however,  at  fancy  prices,  but  at  their  cash 
valuation,  ascertained  by  an  appraisement  under  oath,  by  an 
appraiser  appointed  by  the  company,  who  did  not  include  per- 
ishable improvements  in  the  valuation,  nor  did  he  take  into  con- 
sideration the  prospective  increase  of  value  of  the  lands,  on 
account  of  the  construction  of  the  railroad." 

The  lands  taken  in  this  case  were  mortgaged  to  secure  the 
bonds  upon  which  funds  were  obtained  to  complete  the  road. 


Among  the   interesting  and  valuable   reports  of  these   early 
days  is  the  first  (January  18,  1853)  to  the  stockholders  of  the 


77 


Racine,  Janesville  and  Mississippi  Railroad  Company  (now  a 
part  of  the  Chicago,  Milwa:ukee  and  St.  Paul).  "The  total  esti- 
mated cost  of  the  work,  fully  equipped  and  furnished  in  all 
departments,  is  $20,000  per  mile  amounting,  for  6y  miles  of 
road,  to  $1,340,000."  A  year  later  the  engineer  presented  the 
following  detailed  estimate  of  cost : 

Original  estimate  of  cost  of  66  miles  of  Chicago,  Milwaukee 
and  St.  Paul  in  1854: 

Road. 


Grading,  masonry  and  bridging 

6,233  55-100  gross  tons  rail  on  track,  $78 

Chairs  and  spikes,  per  mile  $600 

Ties 

Laying  track  and  dressing  at  $400 

Ballasting  and  raising  track 

3^  miles  turnouts 

66.08  miles  at  $16,296.40  per  mile,  including  turnouts, 


342,036.00 
486,216.90 
39,648.00 
68.113.75 
26,432.00 
86,710.00 
37.710.00 


$1,076,866.66 


Equipment. 


8  Locomotives 

8  passenger  cars 

4  baggage  cars 

70  freight  cars 

Platform  and  gravel  cars. 


Depot  buildings,  engine  houses,  etc 

Engineering,  superintendence  and  agencies. 
Right  of  way  and  fencing  $1,000  per  mile.. 


66.08  miles  at  $20,938.96  per  mile. 


$72,000 

16,800 

6,400 

45,500 

25,000 


165,700.00 
40,000.00 
35,000.00 
66,080.00 


$1,383,646.66 


The  capital  for  this  expenditure  consisted  of: 


Capital  stock 

First  mortgage  bonds. 


$    670,000 
670,000 

$1,340,000 


Funds  for  the  preliminary  work  were  derived  from  subscrip- 
tions to  capital  stock,  and  the  account  of  disbursements  to 
January   17,   1854,  were  as  follows: 


78 
Disbursements. 


For  construction,  including  grading,  bridging,  grubbing  and 

$  75,227  25 

For  depot  grounds  at  Racine  and  Beloit  and  other  real  estate 
For  right  of  way  and  fencing 

37,887.45 

25,489.14 

8,941 .  70 

For  expense,  including  interest  and  discount,  exchange,  sur- 
veyors' instruments,  office  furniture,  taxes,  expenses  in 
procuring  right  of  way,  and  general  expenses  under 
Commissioners  and  Board  of  Directors 

8,285.58 

For  salaries  including  attorneys  and  bookkeepers 

1,183.22 

Total 

$157,014.34 

These  reports  illustrate  better  than  any  formal  history  can, 
not  only  the  cost  of  the  early  railways  in  the  United  States,  but 
the  sources  from  which  the  funds  for  their  construction  were 
derived  and  (he  economy  with  which  such  funds  were  expended. 
Their  cost  continued  to  justify  Mr.  Tanner's  comment  in  1840 
that  "The  economy  with  which  most  of  them  have  been  exe- 
cuted, when  compared  with  the  cost  of  similar  works  abroad, 
is  matter  of  surprise  to  all."  The  reports  during  the  Fifties 
all  exhibit  the  same  spirit  set  forth  in  the  first  report  of  the 
engineer  of  the  North-Western  Railroad  Company  (the  link 
of  the  Pennsylvania  system  from  Blairsville  to  Newcastle  on 
the  line  to  Cleveland)  as  follows: 

"The  object  contemplated  by  the  construction  of  the  road 
is  two-fold — 1st,  to  develop  the  mineral  wealth  of  the  region 
traversed,  and  furnish  an  outlet  for  the  surplus  productions 
of  a  portion  of  the  state  entirely  destitute  of  railroad  facilities? 
and  2d,  to  open  a  direct  communication  between  Philadelphia 
and  the  Lakes;  either  of  which  will  fully  justify  the  compara- 
tively small  expenditure  required." 

In  this  particular  instance,  the  expenditure  required  was 
estimated  for  "grading  and  bridging  $1,375,000,  averaging  $16,- 
272  per  mile"  for  the  84^  miles  and  "about  an  equal  amount  for 
the  superstructure,  equipment,  depot,  water  stations,  etc.,  nec- 
essary to  put  the  road  in  running  order." 

It  has  cost  many  times  as  much  more  to  place  this  road 
through  that  "rugged  and  difficult  country"  in  a  condition  to 
move  the  modern  millions  of  freight  at  modern  rates. 


79 

Some  idea  of  the  railway  situation  before  the  war  can  be 
had  by  recalling  the  fact  that  the  Baldwin  Locomotive  Works, 
which  in  1906  built  2,666  engines,  some  weighing  as  much  as 
175  tons,  produced  only  47  in  1855;  59  in  1856;  66  in  1857;  33 
in  1858;  70  in  1859  and  83  in  i860,  and  that  they  varied  from 
15  to  28  tons  in  weight.  It  is  difficult  to  say  which  is  the  more 
instructive  contrast,  that  between  the  number,  or  the  weight 
and  conseqiient  power  of  these  engines.  The  decrease  in  pro- 
duction in  1858  reflects  the  effect  of  the  business  depression  in 
the  preceding  year. 

Cost  Since  i860. 

In  i860  the  railway  mileage  of  the  United  States  had  risen 
to  30,635,  more  than  one-third  of  which  was  west  of  Pittsburgh. 
So  rapid  had  been  the  construction  into  unprofitable  territory 
that  the  earnings  had  increased  less  than  $1,000  per  mile  over 
the  figures  for  1850.  A  conservative  estimate  places  the  cost 
of  constructing  this  mileage  at  over  $1,000,000,000  or  about 
$33,000  per  mile.  The  banking  panic  of  1857  had  little  effect 
to  retard  railway  expansion  beyond  increasing  the  cost  of  float- 
ing loans.  By  this  time  the  work  of  relaying  the  original  roads 
with  T-rails  was  completed,  although  in  1865  Charles  A.  Dana, 
who  had  been  appointed  to  investigate  and  report  what  should 
be  done  with  the  railways  that  had  been  seized  and  used  by 
the  government  and  on  which  it  had  spent  millions  of  dollars, 
in  his  report  to  Secretary  Stanton  said :  "Our  expenditures  upon 
some  of  these  have  been  very  heavy.  For  instance,  we  have 
added  to  the  value  of  the  road  from  Nashville  to  Chattanooga 
at  least  a  million  and  a  half  dollars.  When  that  road  was  re- 
captured from  the  public  enemy  it  was  in  a  very  bad  state  of 
repair.  Its  embankments  were  in  many  places  washed  away, 
its  iron  was  what  is  known  as  the  U-rail,  and  was  laid  in  the 
defective  old-fashioned  manner,  upon  longitudinal  sleepers,  with- 
out cross-ties."  The  government  replaced  the  antique  construc- 
tion with  T-rails  for  its  own  use  but  with  little  intention  of 
making  the  replacement  a  permanent  improvement. 

Incredible  as  it  may  seem  to  our  generation,  when  Abraham 
Lincoln  was  elected  for  his  first  term  there  was  not  a  mile  of 


80 

railway  in  the  great  states  of  Minnesota,  Kansas  and  Nebraska 
and  only  23  miles  on  the  whole  Pacific  coast.  In  the  broad 
territory  between,  the  Indians  and  buflfaloes  still  roamed;  and 
most  of  it  had  not  even  been  organized  into  territories,  much 


Baldwin  Engine  Bdii.t  in  1861. 

less  into  the  present  sovereign  states.  I  wonder  if  the  reader 
realizes  what  this  means?  In  his  "Conquest  of  Arid  America," 
William  E.  Smythe  says,  "The  ninety-seventh  meridian  divides 
the  United  States  almost  exactly  into  halves."  A  glance  at  the 
map  shows  that  this  meridian  cut  the  Red  River  of  the  North, 
the  western  boundary  of  Minnesota,  at  Grand  Forks,  and  thence 
passes  through  the  Dakotas,  Nebraska,  Kansas,  Oklahoma  and 
Texas.  In  i860,  less  than  half  a  century  ago,  this  vast  half  of 
the  United  States  was  without  railways  except  for  23  miles  in 
the  environs  of  San  Francisco.  To  it  should  be  added  Minne- 
sota and  the  portions  of  the  other  states  named  east  of  the  97tli 
meridian,  except  Texas,  which  at  that  time  had  some  300  miles, 
all  in  the  eastern  section  of  the  state.  Today,  including  Texas 
and  excluding  Minnesota,  there  are  over  61,000  miles  of  railway 
in  this  territory,  or  double  the  mileage  in  the  whole  United  States 
in  i860;  and  there  is  need  of  as  much  more  if  it  is  10  secure 
anything  like  the  benefits  of  transportation  now  enjoyed  by  that 
half  of  the  republic  east  of  the  97th  meridian. 


By  1870,  when  we  reach  the  period  of  more  trustworthy  data, 
the  railway  mileage  of  the  United  States  was  52,898  miles,  con- 


81 

structed  at  an  approximated  cost  of  $44,000  per  mile.  This  ad- 
vance in  cost  is  partly  represented  in  the  millions  spent  in  re- 
habilitating the  railways  of  the  Southern  States,  which  had  been 
either  destroyed  or  allowed  to  go  to  seed  during  the  civil  war, 


Bkidge,  Locomotive,  Train  and  Woodcut  Landscape.  1869. 

when  the  mileage  in  some  of  these  states  was  at  a  standstill. 
Virginia  went  into  the  war  with  1,379  ^"^  came  out  of  it  with 
1,401  miles;  Georgia  had  1,420  miles  at  the  beginning  and  close 
of  the  war;  Florida,  402  and  416,  respectively;  Mississippi,  862 
and  898;  Louisiana,  335  at  the  opening  and  close;  Kentucky, 
549  and  567,  respectively;  Tennessee,  1,253  ^^^  i>296,  and 
Arkansas  did  not  show  a  mile  of  new  construction  from  the 
opening  of  the  war  until  1868.  From  1861  to  1865  only  349 
miles  of  ra'lway  were  constructed  in  the  twelve  states  in  the 
Southern  group,  and  much  of  this  being  for  military  purposes 
v/as  of  the  most  flimsy  character,  to  be  subsequently  abandoned 
or  wholly  rebuilt  to  meet  the  transportation  demands  of  peace. 
Moreover,  it  was  during  this  period  that  the  Union  and  Cen- 
tral Pacific  Railroads  were  undertaken  and  completed  at  a  total 
cost  of  over  $254,000,000  or  $112,000  per  mile,  with  no  extrava- 
gant expenses  for  terminals  or  right  of  way.  The  net  capitaliza- 
tion of  the  2,955  niiles  owned  by  the  Union  Pacific  today  is  less 
than  $85,000  per  mile.  The  building  of  these  two  connecting 
roads,  to  which  the  government  contributed  its  credit  by  issuing 
over  $53,000,000  in  6  per  cent,  currency  bonds,  and  generous 
land  grants,  was  then  regarded  as  a  patriotic  necessity,  and  its 
completion  in  1869  was  celebrated  as  a  proper  subject  for 
national  rejoicing.     In  1869  public  sentiment  had  not  been  stu- 


82 

diously  perverted  into  an  attitude  of  mistrust  and  hostility 
toward  the  one  agency  that  had  done  more  than  any  other  to 
build  up  and  preserve  the  Union.  The  cost  of  these  two  roads 
alone  was  equivalent  to  adding  $5,000  per  mile  to  the  average 
cost   of   the   entire   mileage    of   the   United   States. 


A  GOLD  Medal,  American  Engine— Paris,  1867. 

Justice  in  the  public  mind  has  never  been  done — probably 
never  will  be — to  the  courage,  enterprise  and  indomitable  energy 
of  the  Americans  who  pushed  this  great  work  through  financial 
shoals  and  physical  obstructions  to  completion.  It  and  the  Cen- 
tral Pacific,  as  well,  were  built  at  war  prices.  Labor  was  scarce 
and  was  to  be  had  only  at  exorbitant  figures.  The  cost  of  ma- 
terials was  well  nigh  prohibitive.  The  price  of  ties  laid  down  at 
Omaha  ran  as  high  as  $2.50.  The  rails  for  the  first  440  miles  of 
the  Union  Pacific  cost  $135  per  ton.  When  railway  connection 
was  established  between  Council  Bluffs  and  the  East  this  was 
reduced  to  $97.50.  Government  bonds  were  issued  as  the  work 
progressed,  and  netted  the  Company  only  65  cents  on  the  dollar. 
The  country  through  which  it  was  built  was  the  hunting  ground 
of  the  most  warlike  Indians  of  the  West.  They  harrassed  the 
work  at  every  stage,  from  scalping  surveying  parties  to  attacks 
on  graders,  who  worked  with  their  guns  stacked  within  easy 
reach.  It  is  related  that  more  than  half  the  construction  gangs 
were  men  who  had  been  through  the  war,  which  experience 
stood  them  in  good  stead. 

The  conception  of  this  work  was  an  inspiration  of  patriot- 
ism; its  financiering  was  a  nightmare;  its  physical  construction 
was  a  battle  between   civilization   and  the  forces  of  savagery 


83 

and  Nature,  worthy  the  pen  of  Fenimore  Cooper;  its  progress 
was  a  titanic  race  for  sub"sidies  and  its  completion  was  hailed 
with  patriotic  acclaim  throughout  the  Union.  President  Lin- 
coln designated  the  eastern  terminus  of  this  transcontinental 
railway  on  March  7,  1864,  and  on  May  10,  1869,  President  Grant 
received  the  tidings  that  the  last  spike — a  golden  one  from  Cali- 
fornia— had  been  driven  that  joined  the  rails  of  the  Union  and 
Central  Pacific  Railways  at  Promontory,  Utah.  That  event  was 
celebrated  in  a  poem  by  Bret  Harte  beginning: 

What  was  it  the  engines  said. 

Pilots  touching  head  to  head; 

Facing  on  the  single  track 

Half  a  world  behind  each  back. 
And  what  was  this  great  work  whose  completion  marked  the 
meeting  of  the  iron  girdle  across  a  continent,  with  half  a  world 
behind  each  pilot?  It  was  a  hastily  graded,  unballasted,  indif- 
erently  equipped,  single  track  road  of  1921  miles,  laid  with  56- 
Ib.  iron  rails,  through  sparsely  settled  deserts  and  mountains, 
which,  paradoxical  as  it  may  seem,  cost  three  times  as  much  as 
it  was  worth  and  yet  was  worth  more  than  three  times  as  much 
as  it  cost. 

The  Union  Pacific  of  1907  has  more  miles  of  yard  track  and 
sidings  than  the  Union  Pacific  of  1870  had  miles  of  main  line. 


It  was  between  i860  and  1870  that  the  steel  rail  first  made 
its  appearance  and  began  to  supplant  iron  on  roads  whose  traf- 
fic justified  the  cost  of  its  substitution.  That  this  was  almost 
prohibitive  for  weak  roads  may  be  judged  from  the  fact  that  in 
1870  the  price  of  steel  rails  was  still  $106  per  ton.  The  first 
steel  rails  used  in  the  United  States  cost  $210  per  ton,  and  the 
Pennsylvania  Railroad  paid  $206  per  ton  for  the  first  Bessemer 
steel  rails  which  it  laid  in   1865. 


By  1880  the  mileage  of  operated  railways  in  the  United  States 
had  increased  to  82,146  and  the  cost  per  mile  had  risen  to  over 
$56,000.  No  one  at  all  conversant  with  the  history  of  American 
railways  during  the  preceding  decade  will  be  at  a  loss  to  ac- 
count for  this  development.     It  covered  a  period  of  extraordi- 


84 

nary  expansion,  disaster  and  recovery.  Between  1870  and  1873 
nearly  18,000  miles  of  road  had  been  built,  more  than  10,000 
miles  of  which  was  in  the  sparsely  settled  western  states  where 
construction  was  expensive,  population  was  needed  and  traffic 
was  light.  The  Northern  Pacific  Railroad,  for  which  ground 
was  broken  in  1870,  boasted  that  it  was  going  into  a  territory 
that  "would  make  ten  States  as  large  as  Pennsylvania,  wholly 
unsupplied  with  railroads."  In  the  language  of  Poor's  Manual, 
speaking  of  one  western  road,  "Nearly  the  whole  increase  of 
mileage  has  proved  unproductive."  This  was  true  of  all  other 
western  railroads.  It  was  simply  a  case  of  excess  of  mileage 
to  population.  The  country  was  railroad  mad,  and  then,  as 
ever,  speculative  promoters  took  advantage  of  the  fever  to 
project  lines  into  territory  which  could  not  be  expected  to  sup- 
port them  for  another  decade.  Then  came  the  granger  legisla- 
tion in  the  same  western  states,  which  frightened  capital  and 
effectually  put  an  end  to  railway  expansion,  until,  with  its  modi- 
fication or  repeal  by  1878,  there  came  restored  confidence  and 
renewed  activity  in  building  into  the  wilderness,  soon  to  be 
peopled  with  millions  brought  thither  by  the  railways  which 
looked  to  the  future  to  recompense  them  for  what  were  origi- 


"  Monster  of  1876"  (3  rx.  6  in.  Gauge)  and  a  Modern  Locomotive, 

nally  unprofitable  optimistic  ventures.  How  the  financial  and 
-industrial  panic  of  1873  affected  the  railways  is  shown  in  the 
receiverships  during  the  following  years,  a  summary  of  which 


85 

is  given  elsewhere  (page  154).  Its  effect  upon  the  cost  of 
the  railways  is  reflected  in^the  advance  from  a  cost  of  $44,000 
per  mile  in  1870  to  $56,000.  While  the  panic  and  liquidation 
wiped  out  millions  of  dollars  of  investments,  it  simply  created 
the  necessity  of  raising  other  millions  to  restore  many  roads 
which  were  permitted  to  run  down  and  to  bring  others  up  to 
the  higher  standard  required  by  our  increasing  population  and 
expanding  trade.  Roadbed,  bridges,  rails,  equipment  and  ter- 
minal facilities  had  to  undergo  a  complete  transformation  to 
meet  the  demands  of  a  freight  traffic  that  more  than  doubled 
in  ten  years. 

Between  1870  and  1880  the  mileage  of  secondary  track  and 
sidings  had  more  than  doubled,  and,  while  steel  rails  were  so 
exceptional  in  1870  as  to  escape  the  attention  of  the  statistician, 
by  1880  there  were  33,679  miles  of  line  laid  with  steel.  The  sub- 
stitution of  steel  rails  for  iron  during  this  decade  alone  at  prices 
ranging  from  $106  per  ton  in  1870  to  $57  in  1880,  cannot  have 
cost  the  railways  of  the  United  States  during  the  period  in 
question  less  than  $250,000,000,  or  over  $3,000  per  mile. 


Between  1880  and  1889  no  less  than  15,570  miles  of  track  were 
converted  from  a  gauge  of  5  feet  or  over  to  the  standard  Ameri- 
can 4  feet  SI  inch  gauge.  Before  1886  there  had  been  an  infinite 
confusion  of  gauges  varying  from  2  feet  up  to  6  feet,  with  over 
3,000  miles  with  two  separate  gauges. 


In  1890  we  arrive  at  the  period  of  official  figures  of  cost  of 
construction  given  in  the  first  table  in  this  chapter.  Unfor- 
tunately, it  was  not  until  1892  that  the  official  statistician  in- 
cluded in  his  report  a  statement  of  the  miles  of  line  repre- 
sented in  this  cost.  Assuming  that  140,000  miles  were  repre- 
sented it  would  appear  that  the  cost  of  construction  up  to  that 
date  was  $55,000  as  against  $56,000  in  1880.  This  decrease  in 
the  average  was  due  to  the  construction  in  ten  years  of  over 
40,000  miles  of  comparatively  inexpensive  lines  in  the  terri- 
tory west  of  the  east  line  of  Illinois  and  the  Mississippi  River. 
The  magnificent  territory  of  the  Northwest  and  Southwest  only 
needed  the  railways  to  make  them  accessible  for  the  thousands 


86 

of  settlers  who  waited  on  transportation  to  convert  it  into  the 
great  agricultural  and  industrial  states  it  has  since  become.  How 
some  of  these  states  have  profited  by  the  empire  building  rail- 
road construction  of  the  twenty  years  before  1890  is  shown  in 
the  following  statement: 


Miles  of 

Railroad 

1870. 

Miles  of 

Railroad 

1890. 

Increase. 

Iowa 

2,683 

1,092 

1.601 

711 

65 

157 

8,347 
5,466 
8,806 
7,911 
1,940 
2,485 
4,154 

5,664 
4,374 
7,305 
7,200 
4,360 

Minnesota 

Kansas 

Texas 

North  Dakota 

South  Dakota 

Colorado 

3,997 

Total 

5,209 

39.109 

32,900 

Railways  at  any  cost  were  indispensable  to  the  very  states 
which  were  among  the  first  to  disregard  the  scripture  injunc- 
tion, "Thou  shalt  not  muzzle  the  ox  when  he  treadeth  out  the 
corn."  It  is  worth  remembering  that  the  population  of  these 
states  increased  from  2,970,749  in  1870  to  7,799,505  in  1890.  It 
is  difficult  to  imagine  any  of  these  states  dependent  on  water- 
ways and  post  roads. 


During  the  following  decade  to  1900  the  reported  cost  of 
construction  rose  to  $10,263,313,400  for  181,437  miles  repre- 
sented, or  over  $56,500  per  mile.  This  shows  an  increase  per 
mile  over  both  1880  and  1890,  and  is  easily  accounted  for  by 
the  continued  transformation  and  improvement  that  was  going 
on  throughout  the  railway  world.  Where  over  74,000  miles  of 
new  road  had  been  built  between  1880  and  1890,  less  than 
37,000  were  added  to  the  total  mileage  in  the  succeeding  de- 
cade. In  the  meantime,  however,  the  auxiliary  tracks  and  sid- 
ings had  increased  from  33,711  to  52,153  miles;  the  tracks  laid 
with  steel  rails  increased  from  167,458  miles  to  238,464  and  cov- 
ered 92.4  per  cent  of  the  total  trackage  of  the  country ;  the 
adoption. of  automatic  couplers  and  train  brakes  scarcely  begun 
in  1890  had  become  well  nigh  universal ;  various  forms  of  block 
signal  systems  were  being  installed  and  the  whole  railway  trans- 


87 


portation  system  had  been  put  on  a  plane  of  efficiency  beyond 
the  anticipations  of  1890.  The  proof  of  this  increased  efficiency 
is  found  in  the  following  statement  of  the  public  service  ren- 
dered in  1890  and  1900: 


Passengers  carried 

Passengers  carried  one  mile 

Passengers  carried  one  mile,  per  mile  of  line.  . , 

Tons  of  freight  carried 

Tons  of  freight  carried  one  mile 

Tons  of  freight  carried  one  mile  per  mile  of  line, 


1900. 


576,865,230 

16,039,007,217 

83,295 

1,101,680,238 

141,599,157,270 

735,366 


1890. 


492,430,865 

11,847,785.617 

75,751 

636,541,617 

76,207,047,298 

487,245 


Here  is-an  increase  of  over  35  per  cent,  in  passenger  service 
and  nearly  86  per  cent,  in  freight  service  during  a  decade  when 
the  population  of  the  republic  showed  a  growth  of  less  than 
21  per  cent.  The  marvel  of  this  achievement  is  that  it  was 
effected  in  the  face  of  one  of  the  worst  periods  of  reaction  ex- 
perienced in  the  industrial  progress  of  the  United  States,  to 
which  reference  has  already  been  made.  Even  in  1900  $3,176,- 
609,698  of  railway  stocks  outstanding,  or  54.34  per  cent,  of  the 
gross  capital  stock  paid  no  dividends. 

The  country  recovered  from  the  effects  of  the  slump  of  1893 
more  rapidly  than  the  railways,  which  were  forced  to  extraordi- 
nary expenditures  to  make  good  the  depreciation  in  road  and 
equipment  suffered  during  the  receiverships  and  enforced  econo- 
mies of  1893-1897.  And  during  this  period  of  recovery  the  rail- 
ways were  called  on  to  make  provision  for  transporting  traffic 
which  increased  at  a  pace  unparalleled  in  the  previous  history  of 
the  country,  although  it  has  been  surpassed  since. 

The  analysis  of  the  cost  of  construction  at  the  date  of  the 
latest  official  statistics  requires  a  separate  chapter. 


88 


VI 
PRESENT  COST  OF  ROAD  AND  EQUIPMENT 

In  his  balance  sheet  for  the  year  ending  June  30,  1905,  the 
official  statistician  gives  the  following  statement  of  the  cost 
of  road  and  equipment  for  "203,228  miles  of  line." 


Amount 
1905. 

Increase 
over  1904. 

$11,170,458,581 
780,890,368 

$      389,288,643 
46,889,612 

Total 

$11,951,348,949 
$58,809 

$436,178,255 

Unfortunately  for  my  purpose  this  balance  sheet  bears  on 
its  face  evidence  of  its  own  incompleteness.  Its  statement 
of  liabilities  places  the  capital  stock  at  $6,680,473,280  and  the 
funded  debt  at  $7,568,555,810,  aggregating  $14,249,029,090  for 
"203,228  miles  of  line  represented."  As  the  total  railway  cap- 
ital for  209,405  miles  of  line  in  another  summary  of  the  same 
report  is  given  at  $13,805,258,121,,  the  total  in  the  balance  sheet 
is  manifestly  incorrect.  This  error  is  all  the  more  bewildering 
because  the  statistician  in  connection  with  the  lesser  total  says: 

"The  aggregate  railway  capital  at  the  close  of  the  year  was 
$i3>8o5, 258,121,  which  is  equal  to  a  par  capitalization  of  $65,926 
per  mile  of  line.  This  assignment  makes  no  deduction  of  stocks 
and  bonds  owned  by  railways  in  their  corporate  capacity,  and 
to  the  extent  that  such  deductions  are  proper,  overstates  the 
capital  per  mile  of  line." 

An  examination  of  earlier  balance  sheets  shows  that  this 
discrepanc}',  by  which  the  capitalization  of  a  part  of  the  rail- 
ways is  made  to  exceed  the  whole,  has  been  steadily  growing 
since  1898.  Prior  to  that  date  the  balance  of  capital  was  always 
very  properly  on  the  side  of  the  greater  mileage,  even  though 
the  capital  per  mile  of  line  was  not. 

Another  feature  of  this  balance   sheet,   calculated   to   detract 


89 


from  its  authority,  is  that  in  the  list  of  assets  the  stocks  and 
bonds  owned  by  the  railways  are  given  as  follows: 

Stocks  and  Bonds  Owned  1905  Given  in  Balance  Sheet. 


Amount 
1905. 

Increase 
over  1904. 

Stocks  owned 

$1,766,761,049 
572,609,132 

$        43,539,611 
14,216,048 

Bonds  owned 

Total 

$2,339,370,171 

$57,755,659 

Compare  these  figures  with  the  following  from  the  summary 
of  ownership  of  railway  stocks  and  bonds,  page  56  of  the  same 
report : 

Stocks  and  Bonds  Actually  Owned. 


Amount  owned  by 
Kailway  Corpora- 
tions. 
1905. 

Increase 
over 
1904. 

Stocks 

$2,070,052,108 
668.100,021 

$127,193,749 
9,627,779 

Bonds 

Total       

$2,638,152,129 
298,781,958 

$136,821,528 
79,066,869 

Discrepancy 

These  discrepancies  cannot  be  explained  as  due  to  the  differ- 
ence in  mileage  represented  in  the  summaries  and  the  balance 
sheet,  for  the  excess  of  capital  in  the  balance  sheet  is  for  less 
mileage,  and  itself  proves  that  all  the  great  stock  and  bond 
owning  companies  are  included  in   the  balance  sheet. 

Such  discrepancies  would  be  immaterial  for  the  purposes 
of  this  inquiry  did  they  not  tend  to  discredit  the  two  items  of 
the  balance  sheet  in  which  we  are  interested.  Here  again  the 
inquirer  after  truth  is  confronted  with  a  statement  of  cost  of 
equipment  that  strains  credulity.  The  official  balance  sheet 
places  the  co^t  of  equipment  in  1905  at  $780,890,368  and  the  in- 
crease in  such  cost  at  $46,889,612.  Turning  to  the  section  of 
the  official  report  relating  to  equipment  for  that  year,  it  appears 
that  the  railways  owned  48,357  locomotives,  40,713  cars  in  pas- 


90 


senger  service,  1,731,409  freight  cars  and  70,749  work  cars.   The 
exact  expenditure  on  account  of  this  equipment  is  not  known, 


1880— Passenger  Coaches— 1905. 

but  if  it  had  to  be  replaced  today  its  cost  might  safely  be  esti- 
mated at  the  prices  given  in  the  following  computation: 

Number  and  Cost  of  Equipment  in  1905. 


Average  Cost. 

Aggregate  Cost. 

$12,000 

$580,204,000 

6,000 

244,278,000 

1,731,409  freight  cars  at 

1,000 

1,731,409,000 

70,749  work  cars  at 

600 

42,449,400 

Total 

$2,598,340,400 

From  which  it  is  evident  that  the  cost  of  equipment  as  given 
in  the  official  balance  sheet  is  less  than  one-third  what  it  should 
be.  The  estimated  cost  of  the  several  items  in  this  table  could 
be  reduced  to*  $10,000;  $5,000;  $800  and  $400  respectively  and 
the  total  cost  would  still  be  $2,100,561,800,  or  nearly  170  per 
cent,  more  than  the  total  given  by  the  official  statistician. 

Unfortunately,  it  is  not  permissible  to  correct  the  official 
balance  sheet  by  substituting  an  estimate,  however  reasonable, 
in  place  of  an  error,  however  palpable,  or  the  cost  of  construc- 
tion would  read  as  follows: 


91 


Cost  of  road 

Cost  of  equipment,  estimated. 


Total  cost  of  construction. 


$11,170,458,581 
2,598,340,400 


$13,768,798,981 


or  with  a  reduced  estimated  cost  per  item,  as  i 

follows : 

$11,170,458,581 

2  100  561  800 

$13,271,020,381 

But   railway   accounts   have   been   so   lacking   in   uniformity 
and  have  come  through  so  many  vicissitudes  and  reorganiza- 


Steel  Passenger  Car,  1907— Total  Weight,  105,500  Lbs. 

tions  that  there  is  absolutely  no  way  by  which  we  can  test  the 
"Cost  of  road"  items.  As  given  in  the  "Balance  Sheet/*  there 
is  every  probability  that  it  includes  many  millions  of  dollars  ex- 
pended on  cost  of  equipment.  But  on  the  other  hand  there  is 
an  equal  probability  that  it  excludes  other  millions  of  cumula- 
tive cost  expended  through  seventy  odd  years  of  railway  devel- 
opment out  of  income  for  additions,  betterments  and  improve- 
ments. 

Fortunately,  there  is  independent  data  by  which  to  arrive  at 
a  more  accurate  approximation  of  the  cost  of  construction  of 
American  railways  than  is  afforded  by  the  official  "Balance 
Sheet."  In  1906,  official  reports  from  313  companies  operating 
206,960  miles  of  line,  or  approximately  94  per  cent,  of  the  aggre- 
gate mileage  in  the  United  States,  furnished  the  following  data 
in  regard  to  their  actual  cost  for  166,493  miles  owned  to  June 
30th  of  that  year: 


92 


« 

Line  represented, 
166,493  MUes. 

Cost  of  road 

$5,966,303,567 

786,469,647. 

3,286,313,826 

Cost  of  equipment .    .    .    . 

Cost  of  both,  not  separated 

Total  cost  of  construction  .         .               .            .    . 

$10,039,087,040 

Distributing  the  third  item  in  this  table  between  cost  of  road 
and  equipment  in  the  same  proportion  as  that  where  they  were 
separately  reported,  it  was  found  that  the  total  cost  of  road 
would  be  $8,874,691,398  and  of  equipment  $1,164,395,642. 

The  313  companies  operated  40,477  miles  of  line  under  leases 
in  one  form  or  another,  for  which  they  paid  $116,144,978  rental. 
Estimating  that  they  paid  as  high  as  10  per  cent,  on  the  cost 
of  these  leased  lines,  much  of  which  was  for  essential  terminal 
trackage,  would  make  a  capitalized  cost  of  $1,161,949,780.  To 
this  should  be  added  the  cost  of  13,066  miles  of  unreported  line, 
for  which  $30,000  per  mile  is  a  low  estimate.  Adding  to  these 
the  estimate  of  actual  cost  of  equipment  in  1906  already  made 
gives  the  following  statement  of  the  cost  of  constructing  and 
equipping   220,036  miles  of  line  in  1906: 

Cost  of  220,036  Miles  of  Line  Operated. 


Cost  of  road  (166,493  miles)  owned 

Cost  of  road  (40,477  miles)  leased 

Cost  of  road  (13,066  miles  unreported,  at  $30,000). 
Cost  of  equipment 

Total  cost  of  construction 


$8,874,691,398 

1,161,949,780 

391,980,000 

2,758.611,600 


$13,187,232,778 


It  will  be  perceived  that  by  following  an  independent  route 
we  arrive  at  approximately  the  same  results — the  higher  total 
of  the  table  derived  from  the  official  Balance  Sheet  being  un- 
doubtedly due  to  the  inclusion  therein  of  cost  of  equipment 
under  cost  of  road. 

Whichever  figures  we  accept,  it  is  evident  that  the  book- 
keeping cost  of  constructing  the  railways  of  the  United  States 


93 

IS  in  the  neighborhood  of  $13,000,000,000.    This  is  $1,328,059,351 
more  than  their  net  capitalization  in  1906! 


The  reason  why  the  original  cost  of  construction  is  an  item 
that  cannot  generally  be  ascertained,  "except  for  relatively  new 
roads,"  is  thus  admirably  stated  by  the  Railroad  Commission  of 
Wisconsin  in  its  decision  in  fixing  the  passenger  fare  in  that 
state  at  2J  cents  per  mile: 

"Most  of  the  roads  were  built  by  construction  companies 
whose  records  are  not  in  existence,  and  then  turned  over  to 
some  other  company  at  a  different  value  than  the  original  cost. 
Many  of  the  roads  are  undergoing  constant  improvements;  in 
fact,  some  of  them  have  been  almost  entirely  rebuilt  since  the 
time  of  their  first  construction.  The  original  cost  as  well  as 
the  amount  that  has  been  expended  upon  the  plant  to  any 
given  date,  exclusive  of  the  maintenance,  are  items  that  for 
these  and  other  reasons  cannot  be  obtained,  and  which  would 
probably  be  of  little  value  if  they  could  be  had." 

There  is  little  reason  to  doubt,  however,  that  the  $13,000,000,- 
000  the  "bookkeeping  cost  of  construction"  fairly  represents  the 
amount  of  money  that  between  1830  and  1906  has  been  ex- 
pended in  bringing  the  railways  of  America  up  from  the  23 
miles  of  experiments  with  horses  and  7-ton  engines  for  motive 
power,  to  the  309,218  miles  of  track  upon  which  engines  weigh- 
ing as  high  as  175  tons  drag  trains  carrying  an  average  of  322 


Baldwin  Mallet  Compound,  1906.    Weight  on  Drivers,  350,000  Lbs. 

tons  of  freight.  At  every  step  money  has  been  spent  that  has 
never  appeared  in  the  construction  account,  some  of  it  on 
roads  that  have  disappeared  from  the  map;  much  of  it  has  gone 


94 

in  driblets — here  an  additional  spike,  there  one  more  tie  per 
rail;  here  a  hundred  feet  of  siding,  there  miles  of  double  track; 
everywhere  betterments  and  improvements  charged  to  operat- 
ing expenses  or  paid  for  out  of  surplus  income,  amounting  in 
some  instances  to  more  than  the  dividends  and  often  where  no 
dividends  were  declared. 

Cost  Measured  by  Traffic. 

The  extent  and  cost  of  the  improvements  during  three-quarters 
of  a  century  cannot  be  ascertained,  but  it  can  be  measured  by 
the  growth  in  the  volume  of  traffic.  The  type  of  the  physical 
structure  of  the  railway,  the  strength  of  its  track  and  bridges, 
the  length  of  its  auxiliary  track,  the  character  and  cost  of  its 
depots,  freight  houses  and  shops,  the  quality  of  its  service — 
everything  in  fact  that  contributes  to  its  value  as  a  public 
servant — depends  on  the  amount  of  its  traffic.  The  cost  of  the 
instrument,  commensurate  to  the  traffic  it  has  handled,  has  par- 
alleled the  growth  of  that  traffic. 

So  late  as  185 1,  the  total  tonnage  of  all  the  railways  of  the 
United  States  is  stated  to  have  been  less  than  5,000,000  tons, 
from  which  the  receipts  were  $20,192,104,  or  over  $4  per  ton, 
irrespective  of  distance. 

In  1906,  the  total  freight  carried  by  the  railways  of  the  United 
States  was  1,631,374,219  tons,  for  which  the  receipts  were  $1,- 
640,386,655,  or  $1.01  per  ton,  irrespective  of  distance. 

If  the  railways  of  1906  had  received  the  same  rate  per  ton 
charged  by  those  of  185 1  their  freight  receipts  would  have  ex- 
ceeded $6,500,000,000  instead  of  the  one-fourth  of  that  sum  they 
actually  earned. 

Between  1851  and  1906  the  mileage  of  American  railways 
covered  in  the  above  data  increased  from  8,876  to  222,340  miles, 
that  is,  25  fold. 

But  their  tonnage  in  the  meantime  increased  from  5,000,000 
to  1,631,374,219  tons,  that  is  to  say  326  fold,  or  over  13  times 
faster  than  their  mileage. 

To  handle  this  remarkable  increase  in  volume  of  traffic  of 
13  times  per  mile,  the  cost  of  road  and  equipment  has  only  risen 
from  about  $30,000  per  mile  in  1850  to  about  $60,000  in  1906, 
while  the  net  capitalization  has  only  increased  to  $54,421. 


95 

In  other  words,  transportation  capacity  in  fifty  years  has  in- 
creased over  1,000  per  cent.,  while  the  cost  of  the  medium  has 
increased  100  per  cent,  per  mile  and  the  capitalization  of  the 
medium  has  increased  less  than  75  per  cent,  per  mile. 


Past  Mail,  1904— Taken  Instantaneously  Whilb  Running  80  Miles  an  Hour. 
Green,  Photographer. 

Accompanying  this  wonderful  achievement  and  inseparably 
involved  with  it  has  been  the  still  more  amazing  phenomenon 
of  a  decrease  in  the  cost  of  railway  service  to  the  public,  amount- 
ing in  the  case  of  freight  rates  to  nearly  80  per  cent,  and  in 
passenger  rates  to  at  least  33  per  cent,  and  to  fully  66  per  cent, 
from  the  pre-railway  days. 

That  these  estimated  reductions  in  the  cost  of  railway  ser- 
vice to  the  public  are  not  wide  of  the  mark  is  proved  by  the 
reports  of  the  Pennsylvania  Railroad.  Since  as  late  as  1864  its 
average  earnings  per  ton  mile  have  declined  from  2.498  cents  to 
0.595  '^^  1906,  or  y6  per  cent.,  and  its  passenger  receipts  from 
2.672  cents  to  2.014,  or  over  24  per  cent.  Had  the  Pennsylvania 
received  the  same  rates  in  1906  that  it  did  in  1864  its  freight 
earnings  last  year  would  have  been  over  $460,000,000  instead 
of  only  $109,960,888,  and  its  passenger  earnings  would  have  been 
nearly  $40,000,000  instead  of  only  $30,074,868.  Today  the  cost 
of  road  of  the  Pennsylvania  Railroad  is  $134,000  per  mile  of 
road  owned  and  of  equipment  $17,000  per  mile  of  line  operated. 
In  1864  the  cost  of  its  road  and  equipment  was  $81,000  per  mile 
of  owned  ioad.  In  1906  the  freight  service  of  the  Pennsylvania 
was  over  40  times  greater  than  in  1864  and  its  passenger  service 


96 


was  nine  fold  greater,  while  the  cost  to  the  public  has  been  at 
the  reduced  rates  as  above  stated. 

The  actual  cost  of  reconstructing,  equipping  and  expanding 
the  Pennsylvania  road  to  meet  the  demands  of  a  traffic  more 
than  doubling  every  decade,  in  the  nature  of  railway  service 
cannot  be  ascertained.  But  that  it  exceeds  the  book  account 
of  cost  of  construction  many  millions  admits  of  no  doubt.  Spec- 
tacular expenditures,  like  that  of  tunneling  Manhattan  Island, 
perfecting  \itX  Philadelphia  terminal  and  reducing  its  grades 
through  the  Alleghanies,  halt  public  attention  and  get  into  the 
capital  account  in  sums  of  eight  figures,  but  of  the  million  and 
one  items  of  improvement  going  on  constantly,  all  charged  in 
the  day's  work,  so  to  speak,  who  knows  or  can  compute  them? 
Financiers  know  that  since  1899  the  Pennsylvania  has  invested 
$72,941,000  in  betterments  and  charged  it  to  income,  paid  off 
$17,020,000  Car  Trust  obligations  out  of  profits  and  invested 
$42,649,000  premiums  on  stock  issued  in  improvements,  but 
even  they  have  no  means  of  knowing  how  much  has  gone  into 
the  cost  of  the  railways  and  been  charged  to  operating  ex- 
penses. 


During  the  eight  years  1899  to  1906  inclusive,  no  less  than 
$274,816,000  has  been  expended  by  the  Pennsylvania  Railroad 
on  additions  and  improvements,  nearly  half  of  which  was  de- 
rived from  profits  as  shown  in  the  accompanying  statement: 

Betterments  and  Outlays  out  of  Profits, 


Year  to  Dec.  31. 


1906. 
1905. 
1904. 
1903. 
1902. 
1901. 
1900. 


Total. 


Additions  to 
Cost  of  Road 
and  Equip- 
ment Charged 
Capital 


$33,532,000 
38,832,000 
12,199,000 
29,292.000 
24,932,000 


1.671,000 
1,748,000 


$142,206,000 


Betterments 

and  Sinking 

Funds 


$11,558,000 

8,739,000 

6,809,000 

10,030,000 

13,037,000 

11,337,000 

8,496,000 

2,935,000 


$72,941,000 


Car  Trust 

Capital 
Payments 


$4,246,000 
3,249,000 
3,249,000 
2,685,000 
1,472,000 
1,121,000 
585,000 
413,000 


$17,020,000 


Other  Sums 
used  to  meet 

Capital 
Expenditures 


$15,201,000 


17,362,000 


8,536,000 
1,550,000 


$42,649,000 


97 

Expenditures  like  these  have  led  such  high  authorit}^  as  the 
London  Statist  to  remark  that  '*Not  only  does  the  capital  ac- 
count of  the  Pennsylvania  Railroad  contain  no  'water/  but  it  is 
doubtful  if  the  road  could  now  be  built  and  equipped  up  to  its 
present  standard  for  more  than  double  the  sum  at  which  it  is 
now  capitalized." 


What  has  been  done  in  this  way  by  the  Pennsylvania  has  been 
the  characteristic  policy  of  maintaining  structures  and  equip- 
ment on  every  railway  in  America  that  has  pretended  to  keep 
pace  with  the  expanding  trafKc  requirements  of  the  times.  It 
has  been  done  whether  the  roads  could  afford  it  or  not,  whether 
they  paid  dividends  or  not,  under  the  inexorable  compulsion  of 
their  public  service. 

In  its  recent  investigation  into  the  finances  of  the  Chicago, 
Milwaukee  and  St.  Paul  Railway,  the  Railroad  Commission  of 
Wisconsin  found  that  $25,617,015  or  one-tenth  of  "the  cost  of 
the  plant"  was  "represented  by  surplus  earnings  and  other  in- 
come which  had  been  devoted  to  new  construction";  and  that 
between  June  30,  1899,  and  June  30,  1906,  "about  $7,826,758 
were  charged  to  operating  expenses  and  credited  to  the  Renewal 
and  Improvement  fund."  Speaking  of  the  permanent  improve- 
ments which  were  included  in  disbursements  before  the  income 
account  of  this  road  was  credited  with  the  surplus,  the  Railroad 
Commissioners  of  Senator  La  Follette's  own  state  decided  that: 

"These  additions  to  the  plant  are  undoubtedly  in  the  nature 
of  permanent  investments  that  could  have  been  properly  charged 
to  the  construction  account.  The  sums  thus  spent  are  equities 
which  belong  to  the  stockholders,  which  they  could  have  taken 
out  in  the  form  of  dividends  or  they  could  very  properly  have 
been  added  to  the  surplus." 

In  passing,  it  is  interesting  to  note  that  while  the  Commis- 
sioners found  that  the  cost  of  construction  account  of  the  Chi- 
cago, Milwaukee  and  St.  Paul  Railway  showed  $32,247  per  mile 
for  the  entire  line,  their  estimate  of  the  cost  of  reproduction 
of  the  part  of  it  in  Wisconsin  was  $37,388  per  mile.  Compare 
these  figures  with  a  net  capitalization  of  only  $31,605  per  mile! 

If  the   present   value   of  the   right  of  way  of  the   Chicago, 


98 


Milwaukee  and  St .  Paul  Railway,  largely  obtained  free  of 
charge,  were  added  to  its  cost  of  construction,  as  the  Commis- 
sioners admitted  it  very  properly  might  be,  the  excess  of  cost 
to  capital  of  this  one  road  would  be  in  the  neighborhood  of 
$10,000  per  mile.     ' 


Assuming  that  there  is  a  more  or  less  close  relation  between 
cost  and  capitalization  in  the  different  groups  into  which  the 
country  is  divided  by  the  Interstate  Commerce  Commission,  the 
following  table  of  net  capitalization  and  earnings  per  mile  in 
the  several  groups  shows  that  capitalization  or  cost  of  con- 
struction is  absolutely  without  determining  effect  on  the  cost 
of  the  service  to  the  public: 


Capitalization  and  Cost  of  Service,  1905 

• 

Group. 

MUes  of 
Line. 

Net  Capital 
per  Mile. 

Average 

Passenger 

Receipts 

per  Mile. 

Cents. 

Average 

Freight 

Receipts 

per  Ton  Mile. 

Cents. 

I.     New  England 

II.     North  Atlantic 

III.     Ohio,  etc 

7,980 
22,100 
23,915 
12,169 
23,869 
46,836 
11,337 
29,384 
14,393 
17,422 

$53,279 
102,931 
67,543 
45,770 
36,879 
43,350 
42,069 
50,557 
39,099 
49,280 

1.762 
1.722 
1.957 
2.363 
2.298 
1.987 
2.108 
2.108 
2.283 
2.124 

1.179 
.665 
607 

IV.     South  Atlantic 

V.     Central  and  Gulf 

VI.     North  Central 

.691 
.839 
766 

VII.     Northwestern 

VIII.     Southwestern 

IX.     Texas 

.900 

.988 
1  096 

X.     Pacific 

1.098 

United  States 

(a)  209,405 

$53,328 

1.962 

.766 

(a)  Net  after  deducting  line  operated  under  trackage  rights. 

This  table  will  afford  a  perplexing  study  to  those  theorists 
who  persist  in  claiming  that  capitalization  exercises  a  controlling 
influence  on  rates.  The  effect  of  density  and  volume  of  traffic 
and  length  of  haul  is  reflected  in  every  figure  of  this  significant 
table.  It  also  indicates  that  outside  of  Groups  I  and  II  there  is 
not  enough  density  of  passenger  traffic  to  justify  a  2  cent  maxi- 
mum fare. 

Unfortunately,  the  official  statistics  do  not  furnish  data  for 
a  like   distribution  of  cost  of  construction  among  the  several 


99 

groups.  As  the  cost  of  construction  for  the  whole  country  ex- 
ceeds the  net  capitalizatio*n  by  about  12  per  cent.,  anyone  in- 
terested can  arrive  at  an  approximation  of  the  cost  in  any  par- 
ticular group  by  adding  such  percentage  to  its  net  capitalization 
per  mile.  The  difference  between  cost  and  capital,  however, 
varies  greatly  in  different  groups. 

The  comparative  data  of  the  above  table  leads  up  to  a  wider 
field  of  comparative  statistics. 


100 


VII 


COMPAKATIVE  CAPITALIZATION 

Candidly  considered,  nothing  in  the  history  of  American  rail- 
ways should  redound  more  to  their  credit  than  their  low  capital 
as  compared  with  either  the  cost  or  capitalization  of  the  rail- 
ways of  other  countries — unless  it  be  the  cheapness  of  their 
freight  rates.  In  either  or  both  respects  comparisons  are  odious 
— to  their  detractors. 

The  plain  unvarnished  facts  on  this  point,  from  official  sources, 
are  presented  in  the  following  table: 

Capital  or  Cost  of  Construction. 
European  Railways. 


Year. 


1906 
1903 
1905 
1904 
1904 
1904 
1903 
1903 
1903 
1905 
1905 
1904 
1904 
1904 
1904 
1904 
1904 


Country, 


United  Kingdom 
Russian  Europe. 
German  Empire. 

France 

Austria 

Hungary 

Italy 

Spain 

Sweden 

Norway 

Denmark 

Belgium 

Holland 

Switzerland 

Bulgaria 

Servia 

Roumania 

Total 


Miles  of 
Line. 


,847 
050 
,048 
,755 
,710 
,069 
,016 
,559 
,551 
,526 
,992 
,520 
,060 
,603 
751 
440 
,974 


175,471 


Capital  or  Cost 
of  Construction. 


$6,247, 

2,833, 

3,486, 

3,313, 

1,378, 

695, 

1,102, 

813, 

230, 

57, 

52, 

408, 

139, 

269, 

29, 

24, 

150, 


240,553 
853,000 
711,237 
980,000 
308,847 
188,847 
811,500 
105,000 
242,016 
087,216 
352,500 
836,500 
769,000 
083,877 
707,000 
350,000 
579,877 


$21,233,206,970 


Cost  per 
MUe. 


$273,438 

94,304 

102,435 

133,871 

108,443 

62,805 

110,104 

95,000 

30,491 

37,409 

26,281 

162,236 

67,849 

103,374 

39,556 

55,341 

76.281 


$121,007 


101 


Other  Parts  of  the  Globe. 


1905 
1904 
1906 
1902 
1905 
1906 
1904 
1906 
1906 
1904 
1906 
1904 
1905 


Canada 

British  India 

Japan 

Argentine  Republic . . 

Mexico 

New  Zealand 

Victoria 

New  South  Wales — 

South  Australia 

Queensland 

Central  South  Africa. 

Cape  Colony 

Natal 


21,353 

27,560 

4,488 

10,798 

6,503 

2,406 

3,371 

3,390 

1,745 

2,928 

2,158 

2,533 

783 


$1,332,498,704 

1,182,500,000 

217,295,827 

668,000,000 

376,181,625 

111,469,900 

200,721,920 

212,458,620 

66,280,700 

101,718,690 

112,053,255 

128,830,273 

63,103,239 


$62,403 
42,906 
48,417 
52,602 
57,847 
45,826 
59,543 
62,672 
37,982 
34,739 
51,899 
50,861 
80,692 


The  United  States. 


1906 


214,475    $11,671,940,649   $64,421 


Taken  singly  or  collectively,  the  obvious  comparisons  of  this 
table  are  a  triumphant  refutation  of  the  charge  that  American 
railways  are  over  capitalization. 

And  v^hen  it  is  considered  that  they  have  been  constructed 
by  labor  whose  wages  has  always  been  from  two  to  twenty 
times*  higher  than  the  wages  paid  in  other  countries,  the  con- 
trast would  pass  belief  were  the  figures  not  incontrovertible. 

Cost  of  British  Roads. 

An  examination  into  the  conditions  in  the  several  countries 
pnly  deepens  the  first  impression  of  amazement  over  what  has 
been  accomplished  in  America  with  low  capitalization. 

In  Great  Britain,  railways  were  built  from  the  start  in  the 
most  substantial  manner.  The  Liverpool  and  Manchester  road, 
upon  which  Stevenson  made  his  successful  demonstration  of  the 
tractive  capacity  of  the  locomotive,  is  said  to  have  cost  $4,100,- 
000,  or  $100,000  per  mile.  The  rails  were  of  forged  iron,  35 
pounds  to  the  yard.  These  rested  on  cubes  of  stone  let  into 
the  ground  three  feet  apart,  and  the  track  was  amply  strong 
for  engines  whose  original  weight  was  figured  not  to  exceed 
six  tons — the  Rocket  was  only  4^  tons. 


*In  India  laborers 'are  paid  from  4  to  8  cents  per  day;  in  Japan  from  10  to  15  cents. 


102 


In  1850,  when  official  statistics  first  took  cognizance  of  British 
railways  as  a  whole,  their  capital  cost  was  well  over  $100,000 
per  mile.  Since  i860  it  has  steadily  risen,  as  appears  from  the 
following  table: 


Year. 

Miles  of  Line. 

Paid-up  Capital. 

Capital  per  Mile. 

1850         

6,621 
10,433 
15,537 
16.658 
17,933 
19,169 
20,073 
21,174 
21.855 
22,847 

$1,170,118,528 
1,695,293,718 
2,580,655,237 
3,069,188,415 
3,546,903,049 
3,973,228,727 
4,370,688,766 
4,875,406,776 
5,727,129,204 
6,247,240,553 

$176,728 

I860 

162,493 

1870 

166,090 

1875 

"W  184,247 

J    197,786 

207,273 

1880 

1885 

1890 

217,739 

1895       

230,254 

1900 

262,051 

1905       

273,438 

Here  we  find  between  1870  and  1905  an  increase  of  142  per 
cent,  in  capitalization  against  an  increase  of  only  47  per  cent, 
in  mileage.  The  increased  cost  amounts  to  no  less  than  $107,- 
348  per  mile,  or  double  the  present  capitalization  per  mile  of 
the  railways  of  the  United  States,  and  more  than  that  of  those 
of  the  German  Empire. 

Nor  is  thj:s  startling  increase  in  the  average  capitalization  of 
British  railways  to  be  accounted  for  by  extraordinary  expendi- 
tures for  double  track.  The  percentage  of  second  track  in  1870 
was  practically  the  same  as  in  1905,  being  54  per  cent,  in  the 
former  year  against  55.5  in  the  latter. 

The  explanation  of  the  very  high  capitalization  of  British 
roads  is  to  be  found  in  the  heavy  cost  of  right  of  way  owing  to 
the  density  of  population  when  railway  building  began,  heavy 
masonry  and  tunnelling  work,  and  the  system  adopted  in  the 
United  Kingdom  of  charging  betterments  and  improvements 
to  capital  account  and  dividing  practically  all  net  receipts  among 
security  holders.  In  1871  there  were  261  persons  to  the  square 
mile  in  the  Kingdom  and  no  less  than  391  in  England,  or  a 
greater  density  than  that  of  Massachusetts  in  1906.  The  pres- 
ent density  for  England  and  Wales  is  558  per  square  mile. 

The  initial  cost  of  right  of  way  of  British  roads  indicates  what 
would  be  the  expense  of  securing  right  of  way  in  populous  terri- 
tory in  the  United  States  today,  and  has  an  Important  bearing 


103 

on  the  question  of  what  it  would  cost  to  reproduce  American 
roads  under  twentieth  century  conditions. 

An  analysis  of  the  elements  of  cost  of  seven  of  the  principal 
British  railways  made  by  the  London  Mining  Journal  in  1844 
gives  the  following  interesting  averages: 

Seven  British  Railways  1844. 

(  £  =  $4.80  then.) 


Parliamentary  expenses 

Law  charges,  engineering  and  direction. 

Land  and  compensation 

Railway  works  and  stations 

Carrying  establishment  (equipment) 


^    Total  ($175,680). 


Cost  per  Mile. 


£1,000 
1,600 
5,000 

26,000 
3,000 


£  i6,600 


The  three  leading  lines,  viz.,  the  London  and  Birmingham, 
the  Great  Western  and  the  Southwestern  cost  £47,000  ($225,- 
600)  per  mile,  and  "the  average  cost  of  all  the  English  passenger 
lines  was  £34,600  ($166,080)." 

Discussing  these  averages,  the  London  Mining  Journal  said: 

"The  United  States  had  3,500  miles  of  railway  open  in  1839. 
None  of  these  cost  more  than  £10,000  per  mile,  and  the  average 
of  the  whole  was  only  £4,800.  It  is  true  some  of  these  are 
single,  and  others  are  of  slight  construction ;  but  it  is  a  startling 
fact  that  the  best  American  railways,  which  are  said  to  be 
little  inferior  to  ours,  are  made  at  one-third  the  expense." 

The  attention  of  the  reader  is  called  to  the  item  of  £5,000  in 
the  above  table  for  "Land  and  Compensation."  It  will  be  per- 
ceived that  it  exceeds  the  entire  average  cost  of  American  rail- 
ways in  1839.  Many  early  railways  in  the  United  States  were 
built  and  equipped  for  less  than  the  average  sum  paid  by 
British  roads  for  parliamentary,  legal  and  engineering  charges. 
It  will  also  be  observed  that  less  than  one-twelfth  of  the  cost  of 
British  roads  was  invested  in  equipment.  Of  the  chief  item, 
£26,000  ($124,800)  for  "railway  works  and  stations,"  the  same 
London  publication  above  'quoted  said : 

''Useless  expense,  too,  has  often  been  incurred  in  the  execu- 
tion of  railways  from  the  ambition  of  engineers  to  render  the 


104 

works  monuments  of  their  own  skill  by  making  all  the  parts 
unnecessarily  strong  or  unnecessarily  perfect." 

The  engineers  of  British  railways  laid  them  out  and  con- 
structed them  as  if  they  were  building  for  eternity  and  already 
knew  all  the  demands  the  future  was  to  put  upon  their  work. 
American  engineers  confronted  a  different  problem  in  a  differ- 
ent and  wiser  spirit.  They  suited  their  plans  to  their  genera- 
tion, recognizing  that  transportation  on  this  continent  was  in 
its  infancy,  and  that  nothing  they  could  do,  with  the  capital 
and  experience  at  their  command,  could  possibly  anticipate  the 
star  of  empire  in  its  western  flight  over  what  in  1839  was  mostly 
wilderness. 

The  monumental    British  roads  of    1844,  reconstructed  up  to 

date,  would  be  ground  to  dust  beneath  the  traffic  which  daily 

passes  over  the  leading  American  lines.     This  is  no  mere  fig- 

"^^trfe  of  speech,  for  the  best  British  construction  of  today  has  been 

tiie^sted  on  the  Pennsylvania  road  and  found  wanting  in  stability 

'  under  90  and  100  ton  engines  drawing  loads  of  1,000  tons  and 

upwards. 

In  passing  it  may  be  said  that  the  Great  Western  Railway 
'  mentibned  above  as  one  of  the  leading  British,  roads  had  a  7- 
foot  gauge  down  to  1892,  and  that  the  London  and  North- 
western Railway,  which  swallowed  the  London  and  Bir- 
mingham also  referred  to  above,  has  a  paid  up  capital  of  £122,- 
662,484,  or  over  $347,508  per  mile.  The  Midland  Railway,  how- 
ever, surpasses  this  with  $404,366  per  mile. 

As  if  to  further  emphasize  the  contrast  in  capitalization  be- 
•  '^ween  British  and  American  railways  it  may  be  said  that  our 
locomotives  average  more  than  twice  as  heavy,  while  our  freight 
cars  average  33  tons  capacity  to  under  12  tons  for  theirs. 

Today  the  railways  of  the  United  States  are  capitalized  at 
less  than  one-fifth  the  paid  up  capitalization  of  British  rail- 
ways. 

Cost  of  German  Railways 

At  all  stages  the  capital  cost  of  the  railways  of  Germany 
has  been  about  double  that  of  American  railways,  and  less  than 
half  that  of  British  roads.     From  such  data  as  is  available  the 


105 


following  statement  of  their  cost  at  different  periods  is  sub- 
mitted: - 


Year. 

Miles  of  Line. 

Cost. 

Cost  per  MUe. 

1868 

10.600 
11,730 
20,690 
24,270 
*28,071 
30,956 
34,048 

$823,030,000 
993,480,000 
2,098,970,000 
2,410,650,000 
2,777,487,620 
3,025,111,981 
3,486,711,237 

$77,644 

1870 

84,695 

1880 

101,448 

1888 

99,326 

1895 

98,945 

1900 

97,723 

1905 

102,435 

♦Since  1895,  inclusive,  the  figures  are  official;  prior  to  that  they  are  Mulhall's. 

The  increase  in  mileage  and  cost  per  mile  between  1870  and 
1880  is  significant  of  the  change  that  took  place  under  the  con- 
solidating hand  of  Bismarck.  It  unified  German  railways  at  an 
increased  cost  of  over  $16,000  per  mile. 

The  reasons  why  the  cost  of  German  railways  is  less  than 
that  of  British  are  four  fold — labor  is  cheaper  there,  population 
is  not  (especially  was  not)  so  dense,  the  physical  problem  was 
easier  and  they  were  not  so  well  built.  They  were  more  ex- 
pensive than  American  roads  despite  the  cheaper  labor  and 
easy  engineering  because  of  the  density  of  the  population  and 
the  costly  bureaucratic  methods  of  construction. 

The  average  daily  wages  of  an  unskilled  laborer  in  Germany 
in  1840  was  about  32  cents  against  49  cents  in  England  and  90 
cents  in  the  United  States.  Relatively  wages  in  the  several 
countries  have  remained  about  the  same  ever  since ;  in  Germany 
ranging  from  48  cents  to  75  cents  now,  in  Great  Britain  from 
60  to  85  cents  and  in  the  United  States  from  $1.25  to  $1.75. 
In  the  working  of  railways  the  three  systems  are  confronted 
with  the  same  difiference  in  the  cost  of  labor  which  absorbs 
60  per  cent,  of  all  operating  expenses. 

In  1837  the  territory  now  included  in  the  German  Empire 
had  a  population  of  31,589,547,  or  151  persons  to  the  square 
mile,  where,  about  the  same  time,  England  and  Wales  had  273; 
Massachusetts  in  1840  had  92,  and  the  whole  United  States  only 
8.4  per  square  mile.  In  1900  Germany  had  a  density  of  270 
to  the  square  mile,  or  still  only  about  half  that  of  England,  but 
ten  times  greater  than  that  of  the  United  States. 

The  cost  of  constructing  the  railways  of  Germany  was  very 


106 


much  less  than  in  Great  Britain  by  reason  of  the  topography 
of  the  country.  Speaking  of  this  feature  of  the  difference  in 
cost  Edwin  A.  Pratt,  in  his  "German  vs.  British  Railways," 
says: 

"Between  the  Hook  of  Holland  and  Berlin  the  railway  does 
not  pass  through  a  single  tunnel  (there  is  in  fact  not  a  single 
railway  tunnel  in  the  whole  of  North  Germany),  nor  does  it 
pass  through  a  single  deep  cutting,  or  along  a  single  high  em- 
bankment. Bridges  and  viaducts  across  rivers  are  the  only 
engineering  works  of  special  importance  that  had  to  be  under- 
taken." In  England  tunnels,  cuttings,  embankments  and 
bridges  abound  and  have  swelled  the  total  cost. 

In  America  where  mountains  have  been  pierced  and  mighty 
rivers  spanned  and  every  engineering  problem  known  to  railway 
construction  has  been  surmounted,  the  cost  of  railways  has 
been  only  one-half  that  through  the  level  plains  of  North  Ger- 
many. 

Cost  of  French  Railways. 

French  railways  whether  built  by  the  government  or  by  com- 
panies show  a  capital  expenditure  more  than  two  and  a  half 
times  greater  than  ours.  Railway  history  in  France  begins  with 
1840  and  Mulhall  gives  the  cost  of  early  construction  as  fol- 
lows: 


Cost  per  Mile. 

Ratio,     i 

£    2.540 

11,430 

12,700 

5,080 

8  0 

Earthworks 

36  0 

40  0 

Stations,  etc 

16  0 

Total 

£31,750 

100  0 

This  may  be  compared  with  the  cost  of  the  Paris  and  Rouen 
road  as  given  in  the  London  Mining  Journal,  reprinted  in  the 
American  Railroad  Journal  (January  30,  1845)  ^s  follows: 


Law  charges,  engineering  and  direction , 

Land  and  compensation 

Railway  works  and  stations 

Carrying  establishment  (equipment) . . . 

Total 


£>    800 

2,300 

17,003 

2,400 

£22 ,500 


107 


As  the  line  from  Paris  to  Rouen  was  described  as  one  of 
"the  two  most  important  railways  in  France"  in  a  contempo- 
raneous technical  publication,  it  does  not  seem  credible  that 
Mulhall's  average  figures  for  1840  can  be  correct.  By  1885  he 
says  the  average  cost  had  "diminished"  to  "exactly  £27,000." 
Since  1895  we  have  the  following  official  data: 


Year. 

Miles. 

Cost  of  Construction. 

Cost  per  Mile, 

1896 

22,649 
23,701 
24,755 

$3,060,697,600 
3,202,901,600 
3,313,980,000 

$135,136 
135,138 
133  871 

1900 

1904 

The  greater  cost  of  French  roads  compared  with  German  is 
probably  due  to  the  greater  density  of  population  and  conse- 
quent increased  expeditures  for  land  damages  when  they  were 
originally  built.  These  it  will  be  perceived  in  the  case  of  the 
Paris  and  Rouen  road  amounted  to  over  $11,000  per  mile  at  a 
time  when  there  were  178  persons  per  square  mile  in  France  to 
only  151  in  Germany.  The  condition  as  to  density  of  population 
has  been  reversed  in  late  years. 


The  high  cost  of  railways  in  Belgium  is  almost  wholly  at- 
tributable to  the  combination  of  density  of  population  with 
state  extravagance  either  in  constructing  or  acquiring  them. 
Belgium  had  a  population  of  over  360  to  the  square  mile  in 
1830  which  has  risen  to  over  600  now,  or  more  than  double  the 
density  of  New  Jersey. 

Cost  of  Japanese  Railways. 

Perhaps  the  most  instructive  sidelight  as  to  the  cost  of  modern 
railways  is  to  be  obtained  by  comparison  with  those  of  Japan. 
How  absolutely  modern  is  the  experience  of  Japan  with  rail- 
ways may  be  judged  from  the  fact  that  in  1871  there  was  not 
a  single  mile  of  line  in  the  empire,  which  even  then  had  a  popula- 
tion of  33,000,000,  or  more  than  200  persons  to  the  square  mile. 
As  late  as  1S80  the  railway  mileage  of  Japan  was  only  121 
miles. 

The  last  report  of  the  Director  of  the  Imperial  Railway  Bureau 
of  Japan  states  the  total  mileage  open  for  traffic  to  March  31, 
1906,  to  be — 


108 


Railway  Mileage  in  Japan. 

GovBrnment  railways 

1  532  miles 

Private 

3,251  miles. 

Total  

4  783  miles 



His  report  further  shows  that  the  cost  of  constructing  this 
mileage  has  been: 


Yen. 

Cost  per  Mile 
(Dollars). 

159,918,445 
251,640,590 

$52,202 

38,742 

Total 

411,559,035 

$43,056 

In  a  separate  table  "the  average  construction 
railways  open  for  traffic"  is  given  as  follows: 

cost 

per  mile  of 

Government  railways. 
Private  railways 


Average  Cost 
per  Mile. 


$52,202 
38.742 


$43,056 


Exclusive  of  Roll- 
ing Stock  Cost. 


$44,201 
31,339 


$35,461 


This  leaves  an  average  of  $7,595  per  mile  as  the  cost  of  roll- 
ing stock,  the  character  of  which  is  shown  to  be  as  follows: 

1,717  locomotives,   average   weight  45.3   tons. 

5,340  passenger  cars,  average  seating  capacity  33.7  per  car. 

27,183  "Goods  wagons,'  average  loading  capacity  6.8  tons  per 
wagon. 

The  passenger  carriages  are  divided  into  the  following 
classes : 


First  class 

Second  class 

Third  class 

Composite  1st,  2d  or  3d  class. . 

Composite  2d  or  3d  class 

Composite  2d,  3d  or  brake  van, 

Miscellaneous 

Post  or  brake  van 

Total 


106 
528 
2,989 
349 
167 
411 
86 
704 


5.340 


109 


Comparecl  with  those  of  the  United  States  the  railways  arc 
supplied  with  the  following  rolling  stock  per  mile  of  line: 


Locomotives . . 
Passenger  cars. 
Freight  cars. . . 


Japan. 

No.  per  10  Miles 

Open. 


3.6 

12.8 
£6.8 


United  States. 
No.  per  10  Miles. 


2.2 

1.8 

80.0 


The  difference  in  number  of  locomotives  per  mile  against  the 
United  States  is  more  than  made  up  by  the  greater  weight  of 
engines  on  American  lines.  These  average  over  63  tons  ex- 
clusive of  tenders  to  45.3  tons  including  tenders  for  the  Japan- 
ese roads.  The  passenger  traffic  in  Japan  accounts  for  almost 
three-fifths  of  the  railway  receipts  and  for  the  large  number  of 
cheap  cars.  The  capacity  of  our  rolling  stock  for  freight  is  fully 
six  times  greater  per  mile  than  that  of  Japan. 

If  the  cost  of  rolling  stock  for  Japanese  railways  was  over 
$7,500  per  mile  it  is  a  reasonable  estimate  to  say  that  the 
rolling  stock  of  American  railways  has  cost  $15,000  per  mile. 

The  aggregate  capital  of  the  private  railway  companies  of 
Japan  in  igo6  was  291,256,800  yen;  or  $19,808,105  more  than 
their  reported  cost  of  construction.  That  this  was  in  no  proper 
sense  an  over  capitalization  is  proved  by  the  fact  that  the  Japan- 
ese government  in  its  scheme  to  nationalize  the  railways  of  the 
islands,  already  passed  by  the  Imperial  diet,  has  fixed  the  price 
of  the  seventeen  private  roads  it  proposes  to  acquire  far  above 
the  cost  of  construction,  as  the  following  table  shows: 


110 


Price  to  be  Paid  for  Japanese  Roads. 


Road  to  be 
Acquired. 


Nippon 

Sanyo 

Kobu 

Kansai 

Saugu 

Sobu 

Boso 

Kyoto 

Kankaku 

Kokuyetsu 

Nishinari 

Nanao 

Ganyetsu 

Tokushima 

Kyushu 

Kokaido-Tanko 
Kokaido 

Totals 


Mileage. 


406 

28 

280 

26 

73 

39 

22 

94 

86 

5 

34 

50 

22 

446 

208 

158 


2,837 


Cost  of 
Construction. 


$26,682,021 

17,917,923 

1,747,066 

13,619,200 

930,432 

2,604,331 

1,024,596 

1,725,099 

3,189,689 

3,564,973 

876,564 

762,407 

1,293,478 

644,703 

25,473,758 

5,756,896 

5,239,645 


$113,052,776 


Price  Fixed  for 
Nationalization. 


$65,266,270 

37,021,490 

4,864,510 

15,604,030 

1,886,920 

5,163,240 

960,760 

1,381,735 

3,175,963 

3,566,980 

978,257 

715,186 

977,949 

617,961 

48,827,300 

14,584,090 

5,462,394 


$211,055,035 


Ratio  Net 
Earnings  to 
Cost,  1906. 


15.3 

10.4 

11.2 

6.4 

10.8 

10.9 

5.8 

3.0 

5.6 

5.4 

5.1 

4.7 

3.5 

4.7 

9.7 

12.5 

1.6 


This  figures  out  $74,393  per  mile  as  the  purchase  price  of 
roads  whose  original  cost  of  construction  was  slightly  under 
$40,000. 

The  Japanese  government  arrived  at  its  valuation  of  the 
several  railways  by  multiplying  the  average  net  profits  in  1902, 
1903  and  190^  by  twenty,  dividing  the  product  by  the  cost  of 
construction  and  multiplying  the  quotient  by  the  paid  up  capi- 
tal. A  glance  at  the  last  column  of  the  table  shows  that  the 
value  of  a  line  was  fixed  at  approximately  the  cost  of  construc- 
tion where  net  earnings  were  6  per  cent,  on  such  cost.  Where 
the  roads  earned  more  the  price  advances  until  it  reaches  150 
per  cent,  for  the  prosperous  Nippon  and  Kokkaido  Colliery  lines. 
"Strategic  significance''  apparently  played  some  part  in  the 
estimate  of  the  value  of  the  last  named  road. 

Twenty  times  the  net  earnings  of  the  railways  of  the  United 
States  during  the  years  1904,  1905  and  1906,  including  taxes  in 
operating  expenses  would  place  their  value  at  $12,811,204,320. 
Excluding  taxes  and  payments  for  betterments  and  improve- 
ments from  operating  expenses  would  give  them  a  value  of 
$I4,505P33»I20. 


Ill 

If  the  Japanese  formula  were  applied  to  American  lines  sev- 
erally as  it  was  to  those  of  Japan,  their  aggregate  estimated 
value  would  be  still  greater. 

The  development  of  engineering  science  as  applied  to  rail- 
ways and  the  cheapness  of  Japanese  labor  during  the  period 
since  they  were  first  projected  account  for  their  comparatively 
low  cost  of  construction.  The  cost  of  labor  in  Japan  can  be 
judged  from  the  following  statement  of  the  average  rates  for 
train  crews: 


Enginemen . 
Firemen . . . 
Conductors. 


22  cents  to  $1 .00  per  day. 
15  cents  to  .37  per  day. 
12  cents  to       .42  per  day. 


In  Japan  unskilled  laborers  receive  from  lo  to  30  cents  a 
day  according  to  the  nature  of  their  employment  and  their 
efficiency. 

The  average  receipts  for  freight  on  the  government  railways 
in  1906  was  2.01  sen  (i.oi  cents)  per  ton  mile  against  1.80  sen 
(0.90  cents)  on  the  private  roads,  and  for  passengers  1.43  sen 
(0.72  cents)  per  mile  on  government  roads  against  1.32  sen 
(0.66  cents)  per  mile  on  the  private  roads. 

Cost  in  Other  Parts  of  the  World. 

The  low  cost  of  the  railways  of  British  India  is  traceable  to 
minimum  expenditures  for  land  and  labor;  the  latter  is  even 
cheaper  than  in  Japan,  the  daily  wage  of  unskilled  labor  being 
from  4  to  8  cents.  Moreover,  7,318,  or  over  one-quarter  of  the 
27,560  miles  of  Indian  railways  are  only  metre  or  3  feet  35-inch 
gauge  roads  and  correspondingly  cheap  in  construction. 

The  variation  in  the  cost  of  the  railways  in  Australian  colo- 
nies from  $34,739  per  mile  in  Queensland  to  %62fi'j2  in  New 
South  Wales  is  almost  wholly  a  matter  of  difference  in  gauges. 
Queensland  has  a  standard  narrow  gauge  of  3  feet,  6  inches; 
South  Australia  has  507  miles  of  5-ft.  3-inch  gauge,  and  1,238 
miles  of  3-ft.  6-inch;  New  South  Wales  has  a  standard  gauge 
of  4-ft.  8J-inch,  and  Victoria  has  78  miles  of  2-ft.  6-inch  gauge 
and  the  balance  is  of  broad  5-ft.  3-inch  construction. 

Compared   with   those   of   Queensland   and    South   Australia 


112 

the  capital  cost  of  $45,826  per  mile  for  the  narrow  3-ft.  6-in. 
gauge  government  railways  of  New  Zealand  appears  excessive. 
And  this  is  emphasized  by  the  fact  that  1,562  of  the  2,406  miles 
in  the  colony  is  laid  with  steel  or  iron  rails  of  53-lb.  to  the 
yard  or  under. 

The  advance  in  the  cost  per  mile  of  New  Zealand  railways 
since  1899  is  shown  in  the  following  statement: 

Cost  of  New  Zealand  Railways. 


Cost  per  MUe. 
(3-ft.  6-in.  Gauge.) 

1899 •.  .  . 

$38,225 
38,755 
38,546 
39,734 
41,083 
43,717 
44,516 
45,826 

1900 

1901 

1902 

1903 

1904 

1905 

1906 

An  increase  of  $7,280  or  nearly  19  per  cent,  in  cost  of  con- 
struction per  mile  in  the  last  five  years,  without  any  extra- 
ordinary work  to  account  for  it,  would  disturb  the  financial 
complacency  of  any  less  optimistic  organization  than  the  gov- 
ernment of  New  Zealand.  Between  1901  and  1906  the  gross 
earnings  of  New  Zealand  railways  increased  over  36  per  cent, 
but  the  percentage  of  working  expenses  to  earnings  rose  from 
65.30  to  69  while  the  percentage  of  net  earnings  to  capital  fell 
from  3.47  to  3.24. 

It  is  impossible  to  reconcile  such  conditions  with  the  ideas 
of  economical  railway  management  which  prevail  in  the  United 
States. 


The  high  cost  of  the  narrow  gauge  (3-ft.  6-inch)  railways  of 
the  British  South  African  colonies  is  due  to  the  combination 
of  government  construction  and  the  scarcity  and  consequent 
high  wages  of  efficient  white  labor. 


An  interesting  fact  in  connection  with  the  capitalization  of 
Canadian  railways,  which  differs  materially  from  their  reported 
cost  of  construction,  is  that  these  two  items  for  the  Intercolonial 


113 

Railway  (the  government  road)  are  reported  at  the  same  amount, 
$81,238,728.  This  is  over  $54,800  per  mile  and  $1,472  per  mile 
more  than  the  capitalization  of  the  railways  of  the  United 
States  for  the  same  year. 

One  thing  stands  out  distinct  above  all  others  as  the  con- 
clusion to  be  drawn  from  this  comparative  resume  of  the  cost 
or  capitalization  of  the  railways  of  the  world,  and  that  is  that 
the  capitalization  of  the  greatest  and  most  efficient  system  is 
less  per  mile  than  that  of  any  other  except  those  of  relatively 
insignificant  extent  and  traffic. 


114 

Till 
COST  or  REPRODUCTION 

Thus  far  we  have  considered  only  the  cost  of  the  construc- 
tion and  equipment  of  the  railways  of  the  United  States  as  it 
appears  in  their  general  balance  sheet  as  an  offset  to  their 
capitalization.  In  this  it  has  been  established  to  a  reasonable 
certainty  that  their  cost  has  apparently  exceeded  their  net  cap- 
italization by  approximately  $1,328,160,000. 

Many  students  and  economists,  however,  maintain  that  the 
true  measure  of  the  value  of  American  railways  is  not  in  what 
they  have  cost,  or  in  their  earning  power,  or  what  their  securi- 
ties stand  for  in  the  open  markets  of  the  world,  but  the  sum 
for  which  they  could  be  duplicated  or  reproduced  today.  If  it 
were  possible  to  secure  an  appraisement  of  this  so  much  talked 
of  cost  of  :eproduction  by  a  thoroughly  competent,  conscien- 
tious and  impartial  tribunal,  it  would  go  far  to  correct' the  pop- 
ular impression  that  American  railways  are  overcapitalized.  The 
difficulty  would  be  to  secure  appraisers  with  the  requisite  capac- 
ity, industry  and  impartiality.  With  their  experience  in  the 
past  the  railways  may  well  look  askance  upon  any  commission 
appointed  to  probe  into  their  affairs.  It  is  commoVi  knowledge 
that  in  recent  years  familiarity  with  any  branch  of  railway 
management  has  been  an  almost  universal  disqualification  for 
appointment  to  any  official  body  charged  with  the  duties  con- 
templated in  legislation  to  regulate  railways.  It  is  to  the 
credit  of  our  common  citizenship  that  our  railway  commissions 
have  in  time  become  as  efficient  as  some  of  them  are.  In  a 
matter  where  it  is  possible  for  a  United  States  senator  to  make 
a  mistake  of  seven  billions  in  judgment  or  animus,  I  care  not 
which,  it  must  be  obvious  that  the  appointment  of  a  commis- 
sion to  make  an  official  valuation  of  the  cost  of  reproducing  the 
railway  system  of  the  United  States  calls  for  the  human  wis- 
dom of  an  yVbraham  Lincoln  and  the  almost  superhuman  mental 
detachment  of  a   George   Washington. 


115 

Granting  that  reasonably  competent  appraisers  could  be 
found  and  were  appointed,  they  would  be  confronted  with  a 
task  whose  conditions  would  grow  beyond  them  no  matter 
how  fast  they  worked,  just  as  the  demands  of  American  indus- 
trial development  have  outstripped  the  strained  resources  of  its 
transportation  facilities.  Besides  taking  into  consideration  the 
infinite  minutiae  and  staggering  aggregate  of  the  business 
we  have  been  discussing,  any  such  inquiry  would  have  to  put 
a  valuation  upon  the  almost  priceless  advantages  of  location  and 
terminals  of  present  railway  systems  separately.  These,  except 
as  they  have  been  included  in  transfers  of  ownership  under  fore- 
closure proceedings  or  in  reorganizations,  are  not  represented 
in  the  present  book  cost  of  the  railways.  In  many  instances 
the  terminal  rights,  facilities  and  property  of  existing  railway 
companies  are  worth  as  much  as  their  total  capitalization. 

Then,  there  are  their  "intangible  assets."  In  Texas  the  Tax 
Commissioner  has  valued  these  at  $152,827,760  over  and  above 
the  $188,600,939  valuation  placed  on  their  physical  property  by 
the  Railroad  Commission. 

In  his  testimony  before  the  Industrial  Commission  on  Trans- 
portation in  1899,  Samuel  R.  Callaway,  then  president  of  the 
New  York  Central,  testified: 

"I  suppose  our  property  in  New  York  is  worth  more  than  the 
entire  capital  of  the  road.  In  fact,  you  cannot  duplicate  it  for 
anything." 

Nobody  familiar  with  the  New  York  Central's  property  in 
New  York  City  and  what  it  means  both  to  the  railway  and 
the  people  of  the  United  States  will  doubt  the  accuracy  of  Mr. 
Callaway's  statement.  The  Pennsylvania  Railroad  is  spending 
over  $100,000,000  to  secure  a  terminal  by  tunnels  that  will  bear 
any  comparison  to  those  obtained  by  its  great  rival  "for  a  song" 
when  New  York  City  above  42d  street  was  mostly  a  picturesque 
rocky  pasture  for  goats.  The  original  cost  of  the  New  York 
and  Harlem  Railroad,  which  included  right  of  way  to  the  heart 
of  the  city,  seventy  years  ago  was  only  $2,200,000,  or  less  than 
$84,000  per  mile  for  its  26  miles  of  line. 

After  it  had  spent  months  and   probably  years  to  fit  itself 


116 


for  the  work  such  a  conscientious  Commission  would  find  that 
it  could  only  conclude  its  endless  task  by  adopting  some  law  of 
averages,  and  applying  them  with  such  discretion  as  it  might 
possess.  Any  attempt  to  deal  with  details  would  be  to  emulate 
the  unnecessary  labor  of  Sisyphus  with  an  accumulating  mass 
to  which  his  fabled  rock  would  seem  a  mere  pebble.  When 
completed,  while  the  valuation  might  be  labeled  "official,"  it 
would  be  no  more  capable  of  demonstration  than  the  following 
estimate  made  from  the  best  evidence  at  the  command  of  a 
single  investigator: 

Cost  of  Reproduction  of  the  Railways  of  the  United  States 
AS  of  June  30,  1906. 


Cost  of  construction  214,475  miles  single  track  at  $35,000  per  mile. 
Cost  of  construction  94,743  miles  auxiliary  track  at  $10,000  per  mile 

Cost  of  Equipment 

Block  Signals,  50,000  miles 

Cost  of  Right  of  Way,  present  location  and  Terminals 

Real   Estate,  Shops,  Tools  and  Material '. 

Total 


$7,506,625,000 

947,430,000 

2,760,000,000 

60,000,000 

3,000,000,000 

500.000.000 


$14,773,055,000 


Cost  of  Construction. 

That  the  foregoing  estimate  of  $35,000  per  mile  as  the  cost 
of  physically  constructing  the  214,475  miles  of  single  track  in 
the  United  States  is  a  reasonable  one  may  be  judged  from  the 
following  figures  of  actual  construction  by  several  companies 
during  the  past  seven  years : 

Examples  of  Cheap,  Typical  and  Expensive  Construction  in 
THE  United  States  since  1899. 


location. 

Inexpen- 
sive 

Typical 

Expensive 

Eastern  Road 

$18,300 

$35,000 
57,892 
63,500 
60,112 
31,678 
42,949 
28,000 
23,730 

$132,532 

Eastern 

204,809  (d) 

Central 

Southern 

19,663 

133,533(d) 

Southwest 

Southwest 

11,345 
15,000 
10,350 

66,771 

Western 

274,000  (d) 

Northwest 

229, 480(d) 

Average .               ... 

$14,931 
180 

$42,620 
510 

/  $173,520 

Miles  represented 

67 

(d)  Double  track. 


117 


This  statement  yields  the  following  summary: 


CLASS 


Miles 


Aggregate 
Cost 


Inexpensive  construction 

Typical  construction 

Expensive  construction 

Total 

Average  per  mile 

Less  average  cost  of  rigt  of  way. 

Net  average  cost  of  construction. 


180 

510 

67 


$2,687,580 
21,736,200  iX 
11,625,840 


757 


$36,049,620 
47,622 
10,388 


$37,234 


In  the  statements  for  the  typical  roads  included  in  the  above, 
it  appeared  that  the  average  outlay  for  right  of  way  was  $6,975 
per  mile.  If  this  is  deducted  from  the  average  cost  of  these 
roads  it  leaves  a  net  average  cost  of  $35,645,  which  is  in  sub- 
stantial agreement  with  the  average  as  derived  from  the  above 
combination  of  the  three  classes  of  construction.  This,  it  is 
submitted,  justifies  adopting  $35,000  as  the  average  cost  of  con- 
struction throughout  the  United  States,  exclusive  of  cost  of 
right  of  way. 

Moreover,  it  should  be  said  that  the  most  expensive  piece 
of  construction  brought  to  the  writer's  notice  in  his  inquiries, 
averaging  $816,800  per  mile,  was  not  included  in  the  above 
summary,  because  of  its  exceptional  character,  involving  ter- 
minal rights,  etc.  The  cost  of  getting  into  any  of  the  larger 
cities  is  not  included  in  any  of  these  computations. 

In  further  substantiation  of  the  basis  of  accepting  $35,000 
as  the  basis  for  estimating  the  cost  of  construction  in  repro- 
ducing the  railways  of  the  United  States,  the  following  com- 
posite statement  of  expenses  of  typical  single  track  construc- 
tion derived  from  reports  of  three  different  railways — ^320  miles 
represented,  is  submitted: 


118 


Composite  Statement  of  Typical  Items. 


ITEM 


Engineering 

Station  grounds 

Real  estate 

Grading 

Tunnels 

Bridges,  trestles  and  culverts. 
Ties 


Ralls 

Track  fastenings 

Frogs  and  switches 

Ballast 

Track  laying  and  surfacing 

Fencing  right  of  way 

Crossings,  cattle  guards  and  signs . . . . 
Interlocking  and  signal  apparatus.. . . 

Telegraph  lines 

Station  buildings  and  fixtures 

Shops,  engine  houses  and  turn  tables . 

Shop  machinery  and  tools 

Water  stations 

Fuel  stations 

Electric  light  and  power  plants 

Miscellaneous  structures 

Legal  expenses 

General  expenses 


Total. 


Average 

cost  per 

mile 


$1,291 


15,418 

365 

7,226 

2,071 

3,944 

737 

115 

1,490 

2,723 

315 

93 

48 

145 

801 

153 

25 

510 

240 

31 

155 

30 

611 

$38,437 


In  order  that  the  reader  may  perceive  for  himself  where  the 
difference  in  cost  between  expensive  and  inexpensive  construc- 
tion occurs,  the  following  composite  summary  has  been  pre- 
pared from  two  sets  of  returns  from  each  of  the  classes  included 
in  the  general  summary  above: 

Itemized  comparative  statement  of  cost  of  expensive  and 
inexpensive  construction  derived  from  the  reports  of  two  of 
each  kind: 


119 


Cost  of  Items  in  Cheap  and  Expensive  Construction. 


Engineering 

Right  of  way  and  station  grounds 

Real  estate 

Grading 

Tunnels 

Bridges,  trestles  and  culverts. .  .  . 

Ties 

Rails 

Track  fastenings 

Frogs  and  switches 

Ballast 

Track  laying  and  surfacing 

Fencing  right  of  way 

Crossings,  cattle  guards  and  signs. 
Interlocking  and  signal  apparatus. 

Telegraph  lines 

Legal  expenses 

General  expenses 


Total. 


Cheap   con- 
struction, 
average  of 
21  miles. 
Cost  per  mile. 


$830 


4,224 


3,015 
898 

2,575 
523 
106 
385 

1,703 

161 

60 


120 
21 


$14,615 


Expensive 

construction, 

average  of 

37  miles. 

Cost  i>er  mile. 


$1,468 


32 

32.702 

1.943 

10,001 

2,124 

4,418 

758 

167 

3,716 

3,710 

550 

175 


172 

26 

684 


$62,646 


In  the  case  of  one  of  the  expensive  examples  the  way  lands 
and  real  estate  cost  $14,666  per  mile  and  in  the  other  $6,087 — 
in  neither  case  was  terminal  rights  involved. 

It  will  not  escape  notice  that  in  none  of  these  itemized  state- 
ments is  full  provision  made  for  interlocking  and  signal  appa- 
ratus or  many  of  the  other  fixtures  and  structures  now  re- 
garded as  indispensable  in  the  construction  of  a  railway  of 
modern  efticiency.  In  the  development  of  the  American  railway 
system  such  things  come  later — for  few  of  our  railv/ays  are 
completely  equipped  in  these  respects  before  they  are  opened. 
Cost  of  construction  is  affected  very  much  more  by  the  nature 
of  the  country  through  which  the  railway  runs  than  the  stand- 
ard of  its  structures,  although  these  vary  greatly.  My  informa- 
tion shows  that  the  inexpensive  construction  was  in  compara- 
tively level  localities,  with  very  little  of  what  the  engineers  call 
"cross  drainage,*'  and  consequently  a  minimum  of  bridges,  tres- 
tles and  culverts.  Typical  construction  traverses  a  more  or  less 
undulating  country,  or  follows  a  valley  of  some  river  crossed 
by  tributary  streams  involving  frequent,  but  not  heavy  cuts  and 


120 


provisions  for  waterways.  It  has  some  rough  country  requir- 
ing cuts  or  fills  which  swell  the  item  for  grading.  An  exami- 
nation of  the  foregoing  statements  indicates  in  the  differing 
cost  of  the  items  for  grading  and  bridges  why  some  roads  cost 
only  $15,000  a  mile  and  others  $35,000  and  still  others  over 
$100,000.  AVhen  they  get  into  the  hills  and  mountains  with 
cuts,  fills  and  tunnels,  or  have  to  invest  in  heavy  masonry  or 
steel  structural  work  the  cost  soars  into  the  hundreds  of  thou- 
sands. 

The  general  conclusions  from  the  foregoing  statements  as 
to  cost  of  construction  is  borne  out  by  a  series  of  articles  in 
the  Railroad  Gazette  in  the  fall  of  1906,  dealing  with  the  "Unit 
Cost  of  Railroad  Building."  Summarized,  its  examples  of  cost, 
"including  preliminary  surveys,  clearing  right  of  way,  roadbed, 
ties,  rails,  ballast  and  side  tracks,  in  shape  for  operation,  but 
not  including  real  estate,  stations,  equipment  or  signals,"  yield 
the  following  data: 

Examples  of  Cost  of  Construction, 
single  track. 


Miles. 


12.13 
9.06 
15.77 
12.00 
4.10 
30.08 
10.72 


93.86 


LOCATION. 


Texas 

Pennsylvania.. 
Pennsylvania.. 
West  Virginia. 

Ohio 

Pennsylvania.. 
West  Virginia. 


Average. . 


Year. 


Cost  per 
mile. 


1904 

J19.649 

1902 

26,300 

1903 

37,014 

1904 

40,000 

1903 

40,700 

1901 

60,628 

1903 

78,000 

$46,527 


DOUBLE  TRACK. 


Miles. 


LOCATION. 


Year. 


Cost  per 
mile. 


11.00 
3.60 

51.84 
1.57 
8.10 


New  York. . . . 
New  York. . . . 

Ohio 

New  York. .  .  . 
West  Virginia. 


1898 
1903 
1905 
1899 
1903 


$  50.000 

76,000 

100,000 

105,186 

154,000 


.76.11 
169.97 


miles.  Average  cost  per  mile, 
miles,  Average  cost  per  mile. 


$97,492 
$69,430 


121 


In  only  one  instance  does  the  Gazette  give  in  detail  the  cost 
of  the  road — that  of  ther  12.13  miles  in  Texas.  This  road  follows 
the  dividing  ridge  between  two  Texan  streams,  with  no  side  hill 
cuts,  considerable  filling,  with  few  openings  and  mostly  on  level 
ground;  the  details  of  cost  are  as  follows: 


ITEM. 


Engineering 

Grading 

Bridges,  trestles  and  culverts. .  .  . 

Ties 

Rails 

Track  fastenings 

Frogs  and  switches 

Ballast 

Track  laying  and  surfacing 

Crossings,  cattle  guards  and  signs 

Total 


Cost  per 
mile. 


$      522 

6,363 

3,434 

2,211 

3,101 

462 

97 

2,516 

784 

159 


$19,649 


]t  will  be  observed  that  several  items  of  cost  necessary  to 
the  completion  of  this  piece  of  road  are  omitted  from  the  state- 
ment, which  nevertheless  affords  an  interesting  basis  for  com- 
parison with  those  previously  given. 

In  the  same  series  of  articles  the  Gazette  prints  the  following 
data  respecting  quantities  and  cost  of  broken  stone  ballast  per 
mile  of  track : 


Cubic  yds. 
per  mile. 


Cost  per 
cubic  yd. 


Cost  per 
mile. 


Single  track. 
Double  track 
Four  track.. 


2,323 

4,910 

10,085 


S0.904 

.904 

•  .904 


$2,099.99 
4,438.64 
9,116.84 


This  agrees  with  the  average  cost  of  ballast  where  stone 
is  used  in  tltc  original  returns  from  which  the  preceding  state- 
ments were  compiled.  The  total  cost  of  ballasting  the  309,218 
miles  of  track  in  the  United  States  may  be  safely  estimated  at 
$600,000,000. 

In  support  of  the  foregoing  may  be  cited  the  following  state- 
ment of  what  it  would  cost  to  reproduce  the  Northern  Pacific 
Railroad  from  figures  filed  by  that  road  with  the  Interstate 
Commerce  Commission  in  June,   1907: 


122 


Estimated  Cost  to  Construct  the  5,785  Miles   Included   in 
THE  Northern  Pacific  Railroad  System  in  1907: 


Cost  per 
mile. 


Engineering  (5,785  miles) 

Grading 

Tunnels 

Bridges,  trestles  and  culverts 

Ties 

Rails 

Track  fastenings 

Frogs  and  switches 

Ballast 

Track  laying  and  surfacing 

Fencing  right  of  way 

Crossings,  cattle  guards  and  signs . .  . 

Signal  apparatus 

Telegraph  lines 

Station  buildings  and  fixtures..- 

Shops,  round  houses  and  turn  tables 

Machinery  and  tools 

Docks  and  wharves 

Water  stations 

Fuel  stations 

Warehouses 

Miscellaneous  structures 

Seattle  terminal  facilities 

Ferry  equipment . 

liCgal  expenses 

General  expenses 

Interest  and  discount 

Contingencies .  . . 

Total 


$  1,500 

12,303 

757 

3,517 

2,387 

4.765 

632 

204 

1,424 

1,309 

131 

60 

29 

249 

434 

686 

190 

251 

340 

110 

498 

397 

425 

106 

50 

50 

6,159 

2,245 


$41,198 


As  the  Northern  Pacific  has  about  i,6oo  miles  of  auxiliary 
track  estimated  to  have  cost  $16,000,000,  the  average  cost  would 
be  reduced  to  about  $38,000  per  mile  of  line,  or  $3,000  more  than 
is  herein  estimated,  for  the  entire  country. 

Cost  of  the  Northern  Pacific  right  of  way  will  be  considered 
elsewhere. 

Cost  of  Auxiliary  Track. 

With  the  exception  of  a  few  miles,  none  of  the  construction 
included  in  the  compilations  from  which  the  average  cost  of 
building  American  railways  was  deduced  covered  double  or  other 
track.  In  the  cases  cited  from  the  Railroad  Gazette,  one  mile 
of  siding  was  included  to  every  nine  miles  of  single  track — the 
average  cost  of  which  however  was  $46,527  per  mile.  My  esti- 
mate of  $10,000  per  mile  for  auxiliary  track,  covering  second. 


123 


third,  fourth,  yard  track  and  sidings,  is  based  on  returns  cover- 
ing over  400  miles,  some  of  which  give  instances  of  additional 
track  construction  costing  as  high  as  $18,000,  $21,000  and  $23,000 
per  mile,  according  as  the  particular  work  involved  more  or 
less  reconstniction  of  the  original  main  track.  Scarcely  any  of 
such  secondary  track  work  fails  to  involve  some  revision  of  the 
grades  and  additional  expense  on  the  primary  track.  One  piece 
of  double  tracking  in  the  middle  west  cost  $3,350,000,  in  round 
numbers,  for  335  miles,  or  $10,000  per  mile.  Irrespective  of  all 
other  expenditures  incidental  to  track  laying,  the  following 
items  of  everage  cost  are  unavoidable: 

Cost  of  Standard  Items  in  Auxiliary  Track. 


ITEM. 


Grading 

Ties 

Rails  (65  lbs.  per  yard). 

Track  fastenings 

Frogs  and  switches 

Ballast 

Track  laying 


Total  for  six  items. 


Cost  per 
mile. 


$1,700 
1,300 
3,200 
400 
40 
1,400 
1,800 


$9,840 


As  this  list  is  far  from  exhaustive,  or  from  furnishing  a  high 
average  piece  of  subsidiary  track  construction,  it  is  safe  to 
estimate  the  average  cost  of  all  descriptions  of  auxiliary  track 
at  $10,000  per  mile,  or  $947,430,000  for  the  whole  railway  system 
of  the  United  States. 

Cost  of  Reproducing  Equipment. 

From  what  has  been  previously  written  in  regard  to  the 
present  cost  of  railway  equipment,  it  is  only  necessary  to  say 
here  that  it  could  not  be  reproduced  for  less  than  the  average 
price  of  locomotives,  and  passenger  and  freight  cars.  Briefly 
stated,  the  number  and  cost  of  railway  equipment  of  June  30, 
1906,,  was  approximately  as  follows: 


Locomotives,  51,672  at  $12,000.. 
Passenger  cars,  42,262  at  $6,000. 
Freight  cars,  1,837,914  at  $1,000. 
Work  cars,  78,736  at  $600 


Total  cost. 


$    620,064,000 

253,572,000 

1,837,914,000 

47,241.600 


$2,758,791,600 


124 


That  the  estimated  cost  of  locomotives  is  a  reasonable  one 
is  proved  by  the  following  weights  and  prices  of  current  types 
of  locomotives  in  1905  furnished  by  the  Baldwin  Locomotive 
Works  company: 


Weight 
(excluding 
tender) 
pounds. 


Cost 


Ameiican  type. .  . . 

Atlantic  type 

Pacific  type 

Ten  AVheel  type. . . 
Consolidation  type. 


102,000 
187,200 
227,000 
156,000 
192,460 


$  9,410 
15,750 
15,830 
13,690 
14,500 


Average  price. 


$13,836 


Moreover,  the  price  of  locomotives  has  advanced  considerably 
since  1905,  and  will  continue  to  advance  so  long  as  the  cost  of 
labor  and  material  and  the  unabated  demand  for  more  engine 
power  continues. 

As  to  the  cost  of  passenger  cars,  their  price  varies  from  $4,0(X) 


New  All-Steel  Postal  Car — ^Union  Pacific. 

to  $14,000  with  the  ruling  average,  including  postal  and  baggage 
cars,  rather  over  $6,000. 

It  is  pertinent  to  this  discussion  to  quote  the  recent  decision 
of  Commissioner  Lane  in  a  case  before  the  Interstate  Commerce 
Commission  involving  separate  accommodations  for  white  and 
colored  passengers  on  the  Nashville,  Chattanooga  and  St.  Louis 
Railway,  where  he  found  that: 

"The  cost  of  the  car  allotted  to  negroes  was  in  the  neighbor- 
hood of  $8, TOO,  while  that  of  the  other  passenger  coach  in  defend- 
ant's No.  93  train  was  about  $8,800.     The  expense  of  the  small 


125 


smoking  compartment  in  the  latter  accounts  for  nearly  all  the 
difference  in  cost  bet-ween  the  two  cars." 

The  history,  of  the  road  to  which  this  case  relates  is  worthy 
of  study  for  the  light  it  sheds  on  another  phase  of  this  subject. 
The  construction  of  the  Western  and  Atlantic  Railroad,  now 
leased  to  the  Nashville,  Chattanooga  and  St.  Louis  Railway, 
was  begun  by  the  State  of  Georgia  under  legislative  sanction 
as  far  back  as  1836,  but  the  last  rails  from  Atlanta  to  Chatta- 
nooga were  not  laid  until  185 1.  For  a  period  of  nearly  twenty 
years,  rich  in  vicissitudes  and  scandals,  the  state  undertook 
its  operation,  and  finally,  in   1870,  leased  it  to  a  private  com- 


Interior  of  Steel  Postal  Car — Union  Pacific. 
(See  preceding  page.) 

pany  at  a  rental  of  $300,000  per  year,  being  6  per  cent,  on 
$5,000,000,  or  $36,232  per  mile,  the  road  was  said  to  have  cost. 
In  1890  the  road  was  again  leased  to  the  present  lessees  for  29 
years  at  $420,012  per  annum,  all  renewals  and  improvements 
made  by  the  lessee.  By  the  arrangement  the  state  is  receiving 
8.4  per  cent,  on  its  original  investment,  or  4.2  per  cent,  on  a 


126 


present  valuation  of  $10,000,000  or  over  $72,000  per  mile,  with 
no  risk  through  a  depletion  of  the  lessee's  revenues  in  conse- 
quence of  arbitrarily  reduced  rates.  The  example  is  an  in- 
structive one  as  to  the  increase  in  the  value  of  railway  right  of 
way  in  Georgia  during  twenty  years,  and  indicates  what  it  would 
cost  to  reproduce  such  a  road  today. 


The  cost  of  freight  cars  runs  from  $600  up  to  $1,200  and 
$1,400  for  the  standard  80,000  pound  car.  Many  of  the  roads 
are  being  equipped  with  steel  cars  and  high  grade  refrigerator 
cars.  There  are  standard  prices  for  different  parts  of  freight 
cars  used  in  settlements  between  railways  which  support  these 
figures.     For  instance: 


Bodies  of  eight  wheel  box  cars  according  to  length,  32  ft.  to  40  ft.  or 


Ditto,  ventilated,  34  ft.  to  40  ft.  or  over 

Bodies  of  flat  cars  32  ft.  to  40  ft.  or  over 

Bodies  of  drop  bottom  gondolas  according  to  capacity. . . 
Bodies  of  hopper  bottom  gondolas,  according  to  capacity 

Trucks,  25  to  50  tons  capacity,  per  pair » 

Trucks  with  steel  or  steel  tired  wheels,  extra  per  car 

Air  brakes 

Steel  couplers 


5330.00  to  $440.00 

385.00  to 

470.00 

155.00  to 

200.00 

200.00  to 

330.00 

220.00  to 

440.00 

215.00  to 

425.90 

112.00 

27.50  to 

35.00 

8.75  to 

9.50 

When  attached  to  an  underframe  varying  in  cost  from  $ioo 
to  $300,  according  to  material  and  capacity,  these  items  can  be 
assembled  into  low  and  high  priced  freight  cars  as  follows: 


Low. 

High. 

Bodies                                    

$155.00 
100.00 
215.00 

$470  00 

300.00 

Trucks                           .        

425.00 

Stppl  M^hppls      •  .           

112.00 

Metal  bolsters 

40.00 

40.00 

27.50 
8.75 

35.00 

Couplers  ..        » 

9.50 

Total                                            

$506  25 

$1  431   50 

Freight  cars,  like  other  railway  equipment,  suffer  deprecia- 
tion to  the  extent  of  from  15  to  20  per  cent,  from  manufacturer's 
cost  immediately  they  are  put  into  service,  becoming  "second 
hand"  in  transit  from  shop  to  road.  Notwithstanding  this  fact, 
it  was  brought  out  in  one  of  the  many  recent  investigations  that 


127 

in  1902  the  Berwind»White  Coal  Company  bought  1,000  cars 
from  the  Pennsylvania  Railroad  at  $1,187  P^^  car,  and  refused 
to  sell  them  back  at  the  same  figure. 

It  is  well  within  the  mark  to  estimate  the  cost  of  reproducing 
the  railway  equipment  of  the  United  States,  as  it  stood  on 
June  30,  1906,  at  $2,760,000,000.  As  it  stands  today,  June  30, 
1907,  it  could  not  be  reproduced  for  less  than  $3,000,000,000, 
for,  apart  from  replacements,  it  has  to  be  increased  at  the  rate 


New  Side  Opening  Suburban  Car — Illinois  Central. 

of  over  10  per  cent,  a  year  or  it  becomes  inadequate  to  the  de- 
mands of  American  transportation. 

Present  Value  of  Railway  Right  of  Way. 

A  scientific  valuation  of  the  right  of  way  and  real  estate 
of  the  railways  of  the  United  States  is  an  undertaking  beyond 
the  resources  of  the  human  mind.  Like  the  estimate  of  the 
wealth  of  the  United  States  by  the  Census  Bureau,  it  must 
remain  an  approximation.  Mine,  as  represented  in  the  table  of 
cost  of  reproduction  of  American  railways,  is  $3,000,000,000,  or 
about  $14,000  per  mile  of  line.  If  I  had  the  courage  of  legitimate 
deductions  from  the  evidence  before  me,  the  average  would  be 
$20,000  per  mile  and  the  aggregate  over  $4,400,000,000. 

That  the  right  of  way  is  valuable  in  proportion  to  density  of 
population  is  a  recognized  principle  the  world  over.  But  the 
relation  varies  according  to  the  character  of  the  population  and 
the  use  to  which  the  property  is  or  may  be  put.  In  seeking 
for  a  basis  by  which  to  value  the  right  of  way  I  have  utilized 


128 


this  principle  as  modified  by  the  actual  experience  of  American 
railways.  Happily,  the  Census  Bureau  furnishes  data  regarding 
the  density  of  population  per  square  mile  and  the  value  of  land 
and  improvements  per  acre  throughout  the  United  States.  Con- 
crete instances  of  cost  of  right  of  way  throughout  the  United 
States  in  recent  years  warrant  the  multiplication  of  the  Census 
valuation  by  15  to  obtain  the  price  which  railways  would  have 
to  pay  for  right  of  way,  whether  obtained  at  private  sale,  as 
most  of  it  has  always  been,  or  by  condemnation,  as  some  of  it 
has  to  be  when  negotiation  fails. 

As  so  much  depends  on  the  reasonableness  of  this  factor,  let 
me  explain  how  it  is  arrived  at. 

To  begin  with,  the  Census  Bureau  average  for  the  whole 
United  States  is  universal,  whereas,  the  railways  have  naturally 
selected  their  loutes  through  the  most  populous  and  richest 
territory.  The  official  average  is  reduced  by  the  low  value  of 
real  property   inaccessible  by  land  or  water  transportation  or 


A  Priceless  Freight  Yard  in  Chicago's  Front  Yard. 


through  natural  causes;  the  railway  average  is  augmented  by 
the  invariable  rule  of  locating  roads  in  the  fertile  valleys  where 
possible.  The  law  of  gravitation  has  caused  the  railways  to 
build  as  near  as  could  be  upon  the  level,  which  they  only  leave 
to  follow  where  man  has  made  land  more  valuable  by  his  pres- 


129 

ence  and  industry  In  large  numbers.  Only  when  the  railway 
deserts  the  fields  and"  enters  towns  and  cities  is  this  rule  of 
selecting  the  most  costly  route,  because  it  pays,  abandoned  and 
the  right  of  way  is  purchased  along  the  line  of  the  least  mone- 
tary resistance.  Even  here  in  some  instances  it  pays  to  follow 
the  most  expensive  routes.  Vide  the  Pennsylvania's  improve- 
ments in  New  York  City. 

But  it  so  happens  that  a  majority  of  the  leading  railways  of 
the  United  States  secured  their  present  rights  of  way  in  and 
through  cities  in  days  when  land  was  comparatively  cheap,  and 
populous  centers  vied  with  each  other  in  extending  inducements 
to  railways  to  secure  the  advantages  of  rail  transportation.  The 
difference  between  the  conditions  when  the  railways  began 
obtaining  right  of  way  and  today  is  shown  in  the  table  of  density 
of  population  by  states  in  1830  and  1906.  In  the  United  States 
at  large  the  density  is  over  four  times  greater  now  than  then, 
and  outside  of  the  original  thirteen  states  it  is  ten  times  greater. 

Under  all  the  circumstances  it  seems  that  six  is  a  low  estimate 
of  the  ratio  to  represent  the  excess  of  the  value  of  land  traversed 
by  the  railways  over  the  average  value  of  land  in  the  United 
States  at  large. 

On  top  of  this  is  the  difference  between  the  value  of  the 
land  and  what  the  railway  has  to  pay  for  it.  Here  I  have 
accepted  the  opinion  of  the  Railroad  Commission  of  Wisconsin, 
which  is  that  the  cost  of  railways  "includes  the  value  of  the 
right  of  way,  yards  and  terminals  at  two  and  one-half  times 
the  prices  of  adjacent  real  estate." 

Six  times  two  and  one-half,  or  fifteen,  therefore,  represents 
the  difference  between  the  value  of  railway  right  of  way  and 
the  average  value  of  land  throughout  the  United  States.  This 
applied  to  the  figures  as  supplied  by  the  Census  Bureau  and 
by  the  Interstate  Comerce  Commission  provides  the  factors  for 
the  following  table,  which  shows  the  density  of  population  1830 
and  1906;  average  value  of  land  per  acre;  average  value  of  a 
mile  of  right  of  way  (12  acres)  and  value  of  railway  right  of 
way  in  the  United  States  by  states  and  territories: 


130 


Density  of  Population  and  Value  of  Right  of  Way  per  Mile 
IN  THE  United  States. 


Density  of 

population 

per  square 

mile. 


1830      1906 


Average 
value  pel- 
acre. 

1904 


Avera;ge 

value, 

right    of 

way  per 

mile 


Total   value 

Railway 
right  of  way, 

1905 


Alabama 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Florida 

Georgia 

Idaho 

Illinois 

Indian  Territory. 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts. . . 

Michigan 

Minnesota.! 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire. 

New  Jersey 

New  Mexico .... 

New  York 

North  Carolina.. 
North  Dakota... 

Ohio 

Oklahoma 

Oregon 

Pennsylvania ... 
Rhode  Island. . . 
South  Carolina.., 
South  Dakota... 

Tennessee , 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West  Virginia.... 

Wisconsin 

Wyoming 

United  States. . 


6.0 


0.( 


61.4 

39.2 

0.6 

8.8 


2.8 
9.6 


17.2 
4.7 
13.4 
45.3 
75.9 
0.2 


2.9 
2.1 


49.9 
43.0 


40.3 
15.2 


23.0 


30.0 
89.6 
19.3 


16.3 


18.7 


18.7 


6.4 


39 

1 

27 

11 

6 

209 

99 

11 

42 

2 

97 

17 

76 

40 

20 

58 

34 

24 

128 

379 

4^ 

25 

37 

49 

2 

14 

04 

48' 

292 

2 

173 

42 

7 

109 

15 

5 

155 

460 

48 

6 

52 

13 

4 

38 

49 

9 

45 

41 

1 

28 


13.61 

2.15 

11.82 

23.67 

9.61 

275  66 

106.90 

6.36 

14.98 

2.76 

152.58 

11.00 

76.64 

70.03 

21.69 

33.41 

16.84 

22.04 

142.16 

630.42 

54.89 

38.31 

9.42 

50  78 

3.52 

22  10 

1.74 

47.17 

395.15 

1.97 

300.08 

12:81 

8.27 

129.78 

14.49 

8.85 

229.71 

766.48 

12.95 

7.75 

20.90 

9.26 

4.92 

33.38 

26.18 

12.78 

23.70 

47.56 

2.11 

$32.75 


2,448 
384 
2,127 
4,800 
1,729 

49,618 

19,242 

1,144 

2,696 

496 

27,464 
1.980 

13,795 

12,605 
3,904 
6,007 
3,031 
3,967 

25,588 

113,475 

9,880 

6,895 

1,695 

9,140 

633 

3,478 

313 

8,580 

71,127 
354 

54,014 
2,305 
1,488 

23,360 
2,608 
1,593 

41,347 

137,966 

2,331 

1,395 

3,762 

1,666 

885 

6,008 

4,712 

2,300 

4.266 

8,560 

379 

$13.38 


11,691,648^ 
699,264^ 
8,899,332 
31,092,838 
8,694,196 
50,511,633 
6,446,070 
4,108,755 
17,367,632 
727,372 
324,899,120 
5,223,240 
95,392,425 
124,423,955 
34,515,264 
19,740,645 
12.157,341 
8,045,076 
36,693,909 
240,454,584 
86,835,320 
55,108,836 
6,225,876 
73,476,460 
2,096,251 
23,203,674 
369,340 
10,871,493 
158,186,443 
898,303 
450,260,704 
9,706,155 
4,812,320 
266,815,240 
6,846,000 
2,888,109 
456.600,442 
29,248,792 
7,365,960 
4.278,465 
13,396,482 
19,969,669 
1,570,877 
6,356,464 
18,617,400 
7,744,100 
12,495,114 
61,726,160 
473,236 
$2,800,227,984 


131 

The  District  of  Columbia  has  been  omitted  from^  this  signifi- 
cant table  because  it^has  no  country  area  to  reduce  its  urban 
density  to  a  comparable  basis.  It  is  a  noteworthy  fact,  however, 
that  the  Census  Bureau  estimates  "the  true  value  of  real  estate 
and  improvements  exclusive  of  railroads,  and  telegraph  and 
telephone  systems"  in  the  District  at  $21,620  per  acre.  A  mile 
of  right  of  wa}'  in  the  District,  therefore,  would  cost  $259,560 
and  the  aggregate  value  of  the  31  miles  of  right  of  way  in  Wash- 
ington, D.  C,  Avould  be  $8,046,360,  to  say  nothing  of  railway 
area  in  yards  and  terminals. 

Lest  the  reader's  credulity  should  be  staggered  by  such  fig- 
ures as  these,  he  should  be  informed  that  there  is  real  estate 
in  Chicago  upon  which  a  valuation  of  over  $4,000,000  per  acre 
has  been  put;  that  there  is  one  terminal  occupying  property 
which,  according  to  the  assessed  valuation  of  adjoining  prop- 
erty, is  worth  over  $1,000,000  an  acre.  There  are  several  other 
terminals  occupying  land  fully  as  valuable.  Only  last  spring 
(1907)  the  Chicago  and  Northwestern,  in  connection  with  other 
purchases  for  its  proposed  passenger  depot,  paid  $50,000  for  a 
piece  of  property  west  of  the  river — that  is  outside  of  the  busi- 
ness center — 80  x  80  feet,  or  at  the  rate  of  nearly  $8  per  square 
foot.  At  the  average  of  12  acres  to  the  mile  of  right  of  way, 
this  would  approximate  $4,224,000  per  mile. 

The  same  company  recently  bought  an  irregular  lot  in  the 
vicinity  of  its  proposed  new  terminal,  containing  28,000  square 
feet  for  $365,000  or  $13  per  square  foot,  which  is  at  the  rate 
of  $572,000  per  acre  or  $6,864,000  per  mile  of  right  of  way  100 
feet  wide.  This  is  a  trifle  less  than  the  price  paid  this  summer 
for  the  site  of  the  old  Fifth  Avenue  hotel  in  New  York  City. 

Another  road,  the  Chicago  and  Western  Indiana,  in  order  to 
extend  its  trackage,  has  recently  paid  $75,000  for  a  strip  of  land 
at  26th  Street,  Chicago,  two  miles  from  the  Postoffice,  contain- 
ing 17,125  square  feet.  This  is  equivalent  to  $4.40  per  square 
foot  or  $193,600  per  acre.  Seventeen  years  ago  the  "Atchison, 
Topeka  and  Santa  Fe  in  Chicago"  sold  2.12  miles  of  terminal 
right  of  way  in  this  territory  for  $8,000,000  cash. 

Other  railways  in  Chicago  have  to  pay  equally  high  prices 
for  land.     It  is  not  pretended  that  property  so  bought  is  worth 


132 


the  price  paid  for  it.  But  these  purchases  illustrate  what  the 
railways  have  to  pay  when  they  go  into  the  market,  as  quietly 
as  they  can,  to  obtain  land  necessary  to  make  extensions  im- 
peratively demanded  by  the  public.  The  Wisconsin  Railroad 
Commission  estimates  the  holdup  to  be  one  and  one-half  times 
above  the  value  of  the  property. 

Speaking  in  round  numbers,  there  are  800  miles  of  main  line 
and  1,400  miles  of  auxiliary  track  within  the  corporate  limits 
of  Chicago.  The  main  line  alone  represents  9,600  acres,  or  one- 
thirteenth  of  its  total  area.  As  the  fair  value  of  all  real  estate 
in  Chicago,  exclusive  of  improvements,  is  assessed  at  approxi- 
mately $1,500,000,000  it  is  clear  that  the  value  of  railway  right 
of  way  would  amount  to  about  $115,000,000,  or  about  $144,000 
per  mile  of  line.  The  value  of  land  occupied  by  other  tracks, 
terminals  and  }  ards  within  the  city  limits  is  probably  as  much 
more.  The  aggregate  would  account  for  a  valuation  of  nearly 
$20,000  per  mile  for  all  railway  right  of  way  in  Illinois,  leaving 
the  rest  of  Cook  County  to  account  for  the  balance  of  $7,464 
as  the  State's  quota  is  the  foregoing  table. 

What  is  true  of  Chicago  and  Illinois  is  true  of  every  other 
state  containing-  one  or  several  large  cities  within  its  borders. 

Let  me  cite  from  the  Census  Bulletin  the  average  value  of 
"real  property  and  improvements"  per  acre  in  counties  in  which 
cities  larger  than  the  national  capital  are  located : 


COUNTY 


New    York,  including  Iving's,  New   York,   Queen's  and 

Richmond 

Cook  (Chicago) 

Philadelphia 

St.  Louis  City 

Suffolk  (Boston) 

Baltimore  City 

Cuyahoga  (Cleveland) 

Erie  (Buffalo) 

San  Francisco 

Hamilton  (Cincinnati) 

Allegheny  (Pittsburg) 

Orleans  (New  Orleans) 

Wayne  (Detroit) 

Milwaukee 

District  of  Columbia,  Washington 


Area 

Land 
value  per 

square 
miles. 

acre. 
1904. 

828 

$29,433 

993 

3,727 

130 

24,464 

61 

16,785 

51 

37,382 

30 

24,779 

472 

1,915 

1,040 

620 

47 

20,861 

405 

1,967 

758 

2,371 

197 

1,327 

626 

984 

228 

2,871 

60 

21,620 

Land 

value  per 

capita. 

1900. 


$1,507 

985 

1,215 

1,020 

1,775 

842 

850 

883 

1,435 

1,196 

1,181 

659 

993 

1,048 

2,678 


133 

Moreover,  these  valuations  are  "exclusive  of  property  held 
by  railroads,  street  railways,"  etc.  If  the  value  per  acre  be 
multiplied  by  12,  the  average  number  of  acres  in  a  mile  of  right 
of  v^ay,  and  the  product  by  2J  to  represent  the  premiums  rail- 
ways have  to  pay  for  property,  the  reader  can  have  some  idea 
of  the  present  cost  of  railway  properties  in  large  American 
cities. 

The  general  accuracy  or  understatement  of  the  value  of  right 
of  way  in  the  table  on  page  128  is  borne  out  by  concrete  exam- 
ples gathered  from  widely  separated  sources. 

In  one  case,  5^998  per  mile  was  paid  for  right  of  way  through 
four  counties  of  a  western  state  having  an  average  population 
of  2.5  per  square  mile.  This  is  a  higher  average  than  the  table 
shows  for  Arizona  with  i  inhabitant  per  square  mile;  Idaho 
with  2;  Montana  with  2;  Nevada  with  .4;  New  Mexico  with  2; 
Utah  with  4  and  Wyoming  with  i. 

In  another  case,  $1,700  was  the  average  paid  per  mile  for 
crossing  two  rural  counties  of  a  western  state  having  an  aver- 
age of  24  persons  per  square  mile,  and  $2,550  for  crossing  three 
other  counties  of  the  same  state  having  an  average  of  27  per- 
sons per  square  mile.  These  were  comparatively  populous 
counties  where  the  value  of  right  of  way  was  not  affected  by 
the  presence  of  large  cities.  Bearing  this  fact  in  mind,  they 
may  be  compared  with  Alabama,  with  its  average  of  $2,448 
valuation  per  mile;  Arkansas  with  $2,127;  Colorado  with  $1,729; 
Florida  with  $1,144;  Georgia  with  $2,696;  Indian  Territory 
with  $1,980;  Mississippi  with  $1,695 ;  N6rth  Carolina  with  $2,305 ; 
North  Dakota  with  $1,488;  Oklahoma  with  $2,608;  Oregon  with 
$Ij593j  South  Carolina  with  $2,331;  South  Dakota  with  $1,395; 
and  Texas  with  $1,666. 

In  a  third  case,  $18,950  per  mile  was  the  average  paid  for 
building  across  a  county  having  a  population  of  112  to  the 
square  mile  to  the  outskirts  of  a  large  city,  which  was  excluded 
from  the  computation  for  obvious  reasons.  Had  the  road  been 
compelled  to  build  another  mile  into  the  city  its  bill  for  right 
of  way  would  have  been  more  than  doubled,  though  spread 
over  the  whole  length  of  its  line  across  that  particular  county. 


134 

The  average  for  this  right  of  way  is  only  exceeded  by  that  for 
Connecticut,  Delaware,  Illinois,  Maryland,  Massachusetts,  New 
Jersey,  New  York,  Ohio,  Pennsylvania  and  Rhode^  Island,  in  all 
of  which  the  value  of  railway  right  of  way  is  enhanced  by  the 
high  price  of  urban  property  through  or  into  which  it  runs. 

One  Chicago  road  which  figured  that  its  "waylands"  through 
the  state  of  Illinois  from  1897  to  1907  cost  an  average  of  $75 
per  acre  or  $1,000  per  mile  of  line  was  confronted  with  a  very 
different  condition  when  it  faced  the  necessity  for  the  purchase 
of  a  mile  only  66  feet  wide  across  a  185  acre  tract  in  the  environs 
of  Chicago.  Here,  while  it  had  to  pay  only  $12,000  for  the  land 
it  needed,  its  bill  for  damage  to  the  remainder  of  the  tract  was 
$18,500  and  it  had  to  purchase  land  for  a  new  street  laid  out 
through  the  tract  at  as  much  more  per  acre  as  it  paid  for  its 
own  right  of  way,  together  with  the  cost  of  improving  the 
same.  So,  that  one  particular  mile  of  "waylands,'*  ^  feet  wide, 
finally  stood  on  the  company's  purchase  account  at  $53,050, 
where  the  8  acres  it  actually  bought  was  valued  at  only  $1,500 
an  acre.  From  this  it  can  be  imagined  what  the  railways  would 
have  to  pay  for  right  of  way  into  terminals  in  any  of  the  great 
cities  of  the  Union,  were  they  called  upon  to  do  so  today. 

The  highest  price  paid  by  another  Chicago  road  for  right  of 
way  during  the  past  ten  years  was  $67,000  per  mile.  Here  again 
the  road  was  already  in  possession  of  the  real  coign  of  vantage 
of  terminals  in  all  the  cities  it  reaches. 

In  proceedings  before  the  New  Jersey  State  Board  of  Equali- 
zation of  Taxes  it  was  recently  testified  that  the  railroads  owned 
600  acres  of  upland  and  600  acres  of  submerged  lands  on  the 
shore  line  of  Hudson  County  which  chiefly  consists  of  Jersey 
City.  Some  of  this  property  was  assessed  as  high  as  $41,000 
per  acre,  when  the  average  value  of  all  real  property  in  the 
county  according  to  the  Census  Bureau  was  only  $11,452.  Even 
at  the  average  estimate,  railroad  right  of  way  in  Jersey  City 
would  be  worth  at  least  $13,000,000.  In  1904  Professor  Henry  C. 
Adams  estimated  the  value  of  the  Pennsylvania  Railroad  ferry 
property  in  Jersey  City  for  the  Census  Bureau  at  $5,698,000. 

In  further  illustration  of  this  point  it  may  be  mentioned  that 


135 

the  three  ternimals  of^the  Atlanta,  Birmingham  and  Atlantic 
Railroad  at  Atlanta,  Birmingham  and  Brunswick,  which  have 
been   secured,   will  cost  approximately  $7,500,000. 

In  fact  today  the  cost  of  access  to  the  coveted  centers  of  the 
great  cities  is  so  nearly  prohibitory  that  only  some  such  wealthy 
system  as  the  I'*ennsylvania  has  the  means  and  daring  to  essay 
it.  This  prohibitive  cost  of  terminals  accounts  for  the  fact  that 
twenty-four  roads  focussing  in  Chicago  possess  only  six  pas- 
senger stations  among  them.  This  means  that  a  majority  of 
them  gain  entrance  to  the  greatest  railway  center  in  the  world 
over  trackage  rights  or  common  ownership.  It  is  impossible 
to  capitalize  these  trackage  rights,  but  it  is  evident  that  they 
represent  a  railway  asset  only  second  to  the  actual  ownership 
of  the  terminals  in  the  proprietary  roads. 

Some  idea,  however,  of  the  value  of  these  rights  at  terminals 
may  be  formed  from  the  fact  that  the  New  York,  New  Haven 
and  Hartford  Railroad  this  year  paid  $798,076  rental  to  the  New 
York  and  Harlem  road  for  twelve  miles  of  trackage  rights  from 
Woodlawn  to  the  Grand  Central  Station,  under  a  lease  made  in 
perpetuity  in  1848.  Capitalized  at  4  per  cent,  this  represents 
nearly  $20,000,000  or  $1,662,000  per  mile.  When  it  is  considered 
that  the  cost  of  the  original  New  York  and  Harlem  Railroad 
from  the  City  Hall  to  White  Plains  (26  miles)  was  only  $2,200,- 
000  sixty  years  ago  the  enormous  advance  in  the  value  of  ter- 
minal rights  then  acquired  or  donated  to  the  early  railways 
becomes  apparent. 

A  foreclosure  sale  valuation  of  $362,694  per  mile  was  recently 
put  on  the  property  of  the  Wheeling  Terminal  Railway  which 
owned  a  bridge  and  about  10  miles  of  terminal  track  at  Wheel- 
ing, W.  Va. 

Reverting  to  the  statement  of  present  cost  filed  by  the  North- 
ern Pacific  Railroad  with  the  Interstate  Commerce  Commission 
already  referred  to,  it  contained  a  summary  of  va.lue  of  right  of 
way  and  station  grounds  at  large  terminals  fully  confirming  the 
foregoing  estimates  and  deductions.  This  summary  was  as 
follows : 


136 


Value  of  Right  of  Way  and  Stations  of  Northern   Pacific 

Railroad. 


LARGE  terminals 


Superior 

Duluth 

Duluth  Union  Depot.  . .  . 

St.  Paul 

Minneapolis 

Spokane 

Tacoma 

Seattle.. 

Butte 

Eiverett 

Bellingham 

South  Bend 

Aberdeen  and  Hauquaim. 


Total  large  terminals. 


Other  right  of  way  and  station  grounds 
Total 


Value  per  acre 

Acres  per  mile  of  line  . 
Value  per  mile  of  line. 


Acres. 


982.62 

600.91 

6.94 

676.97 

284.61 

422.31 

680.84 

461.03 

233.76 

124.68 

67.86 

35.63 

69.83 


4,637.99 


152.185.00 


$156,822.99 


Total   value. 


$1,552,020 

5,155,204 

420,625 

9,574,177 

5,065,082 

7,240,293 

12,160,000 

30,167,000 

2,000,000 

374,040 

339,300 

249,419 

698,300 


$75,000,501 


31,889.589 


$106,890,090 

$681 

27.11 

$18,477 


This  statement  indicates  how  far  within  the  mark  is  my 
estimate  of  $14,000  as  the  average  value  of  railway  right  of 
way  per  mile  in  the  United  States  based  on  the  assumption  that 
"waylands"  100  feet  wide  would  cover  not  only  main  line  but 
land  for  auxiliary  tracks,  sidings,  yard  tracks  and  station 
grounds.  Applied  to  the  whole  country  the  averages  for  the 
Northern  Pacific  would  support  an  estimate  of  $20,000  per  mile, 
or  more  than  $4,400,000,000  as  the  present  value  of  the  right  of 
way  and  station  grounds  of  the  railways  of  the  United  States. 

Touching  the  justice  of  including  the  present  value  of  their 
possessions  in  any  estimate  of  the  cost  of  reproducing  the 
railways  of  the  United  States  the  Railroad  Commission  of  Wis- 
consin, owing  its  appointment  to  Senator  La  Follette,  has  ad- 
mitted that: 

"It  can  perhaps  be  said  that  the  owners  of  railroad  property 
are  entitled  to  any  increase  in  the  value  of  their  property  that 
may  accrue  from  the  progress  of  the  territory  in  which  it  lies, 
and  that  they  have  as  much  right  to  the  natural  increments  in 


137 

the  physical  value  of  their  property  as  the  owners  of  any  other 
property.'" 

If  the  Commission  had  been  entirely  just  it  would  have  gone 
further  and  said  there  was  no  "natural  increment"  about  the  in- 
crease in  the  value  of  railway  property  to  which  they  have  not 
contributed  by  far  the  greater  share.  Without  the  railways 
built  in  Wisconsin  since  1850  the  increase  of  the  wealth  of  Sena- 
tor La  Follette's  state  from  $42,056,595  in  that  year  to  $2,838,- 
678,239,  or  over  6,650  per  cent,  wbuld  have  been  as  impossible 
as,  looking  backwards,  it  seems  incredible. 

There  has  been  no  "unearned  increment"  about  the  advance 
in  the  value  of  the  physical  property  of  the  railways. 

It  is  needless  in  such  a  work  as  this  to  more  than  remind 
the  reader  that  the  increase  in  land  values  has  not  been  con- 
fined to  the  cities,  but  has  its  counterpart  throughout  the  coun- 
try. One  example  will  suffice  to  illustrate  this  point.  The  late 
William  (Lord)  Scully,  of  absentee  landlord  fame,  bought  farm 
lands  in  Illinois  in  1851  from  the  government  at  $1.25  per  acre 
which  he  rented  in  1900  at  $3  per  acre  per  annum. 


138 


IX 
COMMERCIAL  AND  MARKET  TALUATION 

In  1905  the  Statistician  of  the  Interstate  Commerce  Commis- 
sion, Professor  Henry  C.  Adams,  as  the  authorized  agent  of  the 
Census  Bureau,  reported  what  has  been  currently  known  as 
the  "Commercial  Valuation  of  Railway  Operating  Property  in 
the  United  States."  This  report,  which  was  made  as  "one  step 
in  the  determination  of  the  wealth  of  the  nation,"  placed  the 
value  of  railway  operating  property,  computed  for  the  year 
1904,  at 

$11,244,852,000. 

This  valuation  was  arrived  at  by  capitalizing  what  was  called 
"their  true  net  earnings"  at  a  rate  arrived  at  by  an  elaborated 
formula  based  on  "the  market  price  of  their  securities." 

In  his  computation  for  the  Census  Bureau,  Professor  Adams 
very  wisely  freed  himself  from  all  the  "entangling  alliances" 
and  duplications  arising  from  including  "non-operating"  with 
operating  railways  in  his  statistical  work  for  the  Interstate 
Commerce  Commission.  By  adopting  the  "operating  railway 
systems  as  the  units  of  appraisal,"  as  expressed  by  the  Director 
of  the  Census,  he  was  enabled  to  arrive  at  a  result  the  value  of 
which  depends  solely  on  the  acceptance  of  two  elusive  factors, 
viz.,  "true  net  earnings,"  and  the  rate  determined  on  for  their 
capitalization. 

Professor  Adams  arrived  at  the  former  by  subtracting  reported 
operating  expenses,  less  such  sums  as  were  spent  for  permanent 
improvements  and  charged  to  operating  expenses,  from  gross 
earnings  from  operation.  From  the  remainder  he  subtracted 
the  amount  of  taxes  paid.  The  final  balance  was  accepted  as 
the  true  profit  from  operation. 

This  afforded  a  very  simple  formula,  but  an  attempt  was  made 
to  equalize  the  result  by  taking  the  average  of  profits  from 
operation  of  certain  roads  for  five  years,  and  of  others  for  three. 


139 


and  estimating  the  value  of  others  on  mileage,  gross  earn- 
ings, operating  expenses;  etc. 

With  the  aid  of  Professor  B.  H.  Meyer,  of  the  Railroad  Com- 
mission of  Wisconsin,  Professor  Adams  arrived  at  4.256  per 
cent,  as  the  exact  rate  for  the  capitalization  of  the  "true  net 
earnings"  as  previously  ascertained. 

By  supplementing  these  methods  with  others  to  meet  iso- 
lated cases.  Professor  Adams  and  his  assistants  compiled  the 
following  statement  of  the  commercial  value  of  the  railways  of 
the  United  States  for  the  year  1904  (Vide  Census  Bulletin  21, 
page  9) : 


Capitalization  of  net  earnings: 

(a)  Rate  based  on  market  quotations 

(b)  Rate  based  on  formulae 

Operated  mileage 

Gross  earnings 

Operating  expenses 

Cost  of  construction,  etc 

Some  or  all  of  debt 

Appraisal  for  taxation 

Income  from  lease 

Actual  sale  of  entire  property 

Total 


Valuation. 

Per  cent  of 

total. 

$10,385,264,000 

92.35 

705,418,000 

6.27 

87,235,000 

.78 

11,288,000 

.10 

2,828,000 

.03 

5,755,000 

.05 

22,871.000 

.20 

1,816,000 

.02 

22,318,000 

.20 

59,000 

$11,244,852,000 

100.00 

As  this  valuation  rests  on  "the  capitalization  of  the  average 
net  earnings  for  a  period  of  five  years  preceding  June  30,  1904," 
it  is  obviously  a  valuation  for  1901-2  rather  than  for  1904.  As 
the  net  earnings  of  the  railways  from  operation  in  1904  were 
$42,585,342  greater  than  the  average  for  the  five  year  period 
preceding,  it  is  equally  obvious  that  using  the  rate  determined 
on,  viz.,  4.256  per  cent.,  the  capitalized  value  of  the  railways 
would  have  been  almost  exactly  $1,000,000,000  more  than  as 
estimated  on  the  period  named. 

Now  if  the  method  of  valuation  of  Professors  Adams  and 
Meyer  be  applied  to  the  earnings  for  the  year  ending  June  30, 
1905,  and  estimating  the  cost  of  permanent  improvements 
charged  to  operating  expense,  we  obtain  the  following: 


140 


Commercial  Value,  1905. 


Gross  earnings  from  operation 

Expenses  of  operation 

Less  permanent  improvements  charged  to  operating  expen- 
pense 


Income  from  operation... 
Less  taxes , 


"True  net  earnings   .  .  . 
Capitalized  at  4.2.56%  = 


$1,390,602,152 
20,000,000 


$2,082,482,406 


1,370,602,152 


$  711,880,254 
63,474,679 


$  648,405,575 


$15,235,093,400 


If  the  same  methods  were  applied  to  the  railway  income  for 
the  year  ending  June  30,  1906,  the  results  would  be  still  more 
surprising,   as  the  following  statement  shows: 

Commercial  Value,  1906. 


Gross  earnings  from  operation 

Expenses  of  operation.  1 

Less  peraianent  improvements  charged  to  operating  expense 


Income  from  operation. 
Less  taxes 


"True  net  earnings". , .  . 
Capitalized  at  4.256%=. 


$1,536,877,271 
20,000,000 


$2,325,765,167 
1,516,877,271 


$808,887,S£6 
74,785,615 

$734,101,281 
$17,248,620,000 


If  the  formula  adopted  by  Professors  Adams  and  Meyer  and 
accepted  by  the  Census  Bureau  is  entitled  to  credit,  the  com- 
mercial value  of  the  railways  of  the  United  States  on  June  30, 
1906,  was  approximately  $17,248,620,000. 

Even  if  the  rate  4.256  be  applied  to  the  average  "true  net 
earnings"  of  the  last  period  of  five  years,  1902  to  1906,  inclusive, 
the  commercial  value  according  to  the  official  formula  would 
be  approximately  $14,840,000,000.  This  of  course  is  a  mean 
commercial  value  for  the  term  of  years  and  not  at  the  end  of 
the  term  when  the  "true  net  earnings"  were  fully  $232,000,000 
more  than  at  the  beginning. 

When  the  returns  for  1907  are  all  in  it  will  be  found  that 
the  commercial  value  of  the  railways  of  the  United  States  ac- 
cording to  the  formula  adopted  by  the  Census  Bureau  is  over 
$19,000,000,000. 

But  it  must  be  obvious  to  the  most  casual  student  that  this 


141 

so-called  commercial  valuation  of  the  railways  is  merely  a  cap- 
italization of  the  earning  capacity  of  the  railways,  which  must 
rise  and  fall  with  the  prosperity  of  the  public  they  serve.  In 
no  way  does  it  go  to  establish  "the  value  of  the  transportation 
plant  employed  in  the  service  of  that  public."  , 

The  sole  purpose  for  which  a  separate  valuation  of  the  physical 
property  of  the  railways  is  sought  by  the  Interstate  Commerce 
Commission  is  that  it  may  be  used  in  "determining:  the  reason- 
ableness or  unreasonableness  of  rates."  As  this  commercial 
valuation  depends  absolutely  on  income  arising  from  the  rates, 
even  Professor  Adams  admits  "that  such  a  valuation  cannot  be 
used"  for  that  purpose. 

That  it  could  be  and  would  be  used  as  a  basis  of  values  in 
case  the  Government  were  considering  the  purchase  of  railways 
is  indicated  by  the  procedure  adopted  in  Germany  and  Japan. 

Market  Value  of  the  Railways. 

Little  need  be  said  of  the  value  of  the  railways  of  the  United 
States  as  reflected  in  daily  market  quotations.  These  are  affected 
by  influences  so  entirely  independent  of  the  value  of  the  rail- 
ways, and  often  so  independent  even  of  their  income  earning 
capacity,  as  to  be  practically  worthless  as  a  measure  of  value. 

In  1900  when  the  net  capital  of  the  railways  of  the  United 
States  was  $9,547,984,611,  the  Interstate  Commerce  Commission 
made  a  report  of  their  market  value  to  the  Senate  as  follows: 


•Ascertainable  market  value. . . 
Not  ascertainable  (par  value) . 


Total. 


$8,351,103,523 
812,066,859 


$9,163,170,382 


In  short,  in  1900  the  market  value  of  railway  securities  was 
96  per  cent,  of  their  net  capitalization.  In  1905  their  net  cap- 
italization had  risen  to  $11,167,105,992  and  on  a  basis  of  96 
per  cent,  their  market  value  would  have  been  approximatel;^ 
$10,720,420,000. 

But  between  1900  and  1905  the  quoted  market  value  of  rail- 
way securitie'3  had  advanced  an  average  of  20  per  cen^  making 
their  market  value  two  3^ears  ago  approximately  $12,864,500,- 
000. 


142 

In  1906  there  was  a  further  increase  both  in  the  capitalization 
and  market  value  of  railway  securities,  so  by  the  end  of  last 
year  it  is  safe  to  estimate  the  latter  at  $13,000,000,000. 

Then  came  the  great  decline  of  last  March  which  in  the 
course  of  a  few  weeks  demonstrated  the  utter  worthlessness  of 
market  prices  as  a  measure  of  the  values  of  railway  property. 
With  every  railway  in  the  country  in  better  physical  condition 
than  ever  before  in  its  history;  with  their  facilities  taxed  to 
the  utmost  by  unprecedented  traffic;  with  gross  earnings  sur- 
passing all  records  and  net  earnings  showing  a  healthy  increase ; 
with  the  business  of  the  republic  betraying  no  signs  of  a  reces- 
sion— in  the  face  of  the  most  favorable  conditions — so  far  as 
railway  earnings  were  concerned — the  market  value  of  their 
securities  in  six  months  showed  a  shrinkage  on  June  30,  1907, 
of  no  less  than  $2,000,000,000. 

That  this  decline  of  two  billions  is  not  a  mere  estimate  is 
proved  by  the  fact  that  the  shares  of  54  companies  having  an 
aggregate  capital  stock  of  $4,481,400,000  showed  an  actual 
shrinkage  of  $1,361,505,000  in  market  value  in  the  first  six 
months  of  1907.  This  is  equivalent  to  a  decline  of  over  30  per 
cent.  If  the  remainder  of  the  capital  stock  suffered  a  like  de- 
cline it  would  amount  to  no  less  than  $1,966,000,000  for  all  the 
railways.  -As  there  was  a  shrinkage  of  over  6  per  cent,  in  the 
market  values  of  railway  bonds  aggregating  at  least  $360,000,000, 
the  total  decline  in  the  market  values  of  railway  securities  must 
have  been  fully  $2,300,000,000. 

Any  measure  of  values  liable  to  a  shrinkage  of  from  15 
to  20  per  cent,  in  the  face  of  an  increase  in  the  physical,  com- 
mercial, taxable  and  earning  value  of  the  railways  must  be 
rejected  as  valueless  in  ascertaining  their  true  valuation. 

Furthermore,  in  1900  when  the  Interstate  Commerce  Com- 
mission reported  its  estimate  of  $9,163,170,382  as  the  market 
value  of  all  the  railways  to  the  United  States  Senate,  it  reported 
the  net  interest  and  dividends  paid  by  the  railways  as  fol- 
lows : 


143 


Net  interest  on  funded  debt. . , 
Interest  on  current  liabilities. . 
Net  dividends 


Total. 


$242,998,285 

4,912,892 

118,624,409 


$366,535,586 


This  sum  is  an  inappreciable  shade  over  4  per  cent,  on  the 
market  value  as  reported  by  the  Commission. 

In  1905  and  1906  the  railways  reported  the  payment  of  inter- 
est and  dividends  under  the  same  heads  as  follows: 


Net  interest  on  debt 

Interest  on  current  liabilities; 
Net  dividends 


Total. 


1905 

(Full  Returns). 


$294,803,884 

11,451,400 

188,175,151 


$494,430,435 


1906 

(94%  Returns). 


$252,572,777 

13,819,287 

221,507,203 


$487,899,267 


Capitalized  at  4  per  cent.,  the  rate  fixed  in  the  Commission's 
report  in  1900  the  net  interest  and  dividends  paid  in  1905  would 
justify  a  market  valuation  for  that  year  of  approximately  $12,- 
360,000,000  and  in  1906  for  94  per  cent,  of  the  roads  of  $12,197,- 
000,000.  ^^_^ 

But  as  market  values  as  revealed  in  daily  stock  quotations 
are  influenced  as  much  by  the  price  of  money  in  London  as  by 
the  earnings  or  true  value  of  American  railways  such  estimates 
as  these  possess  little  more  than  a  speculative  interest,  except 
as  they  afford  cumulative  testimony  to  the  point  that  American 
railways  are  not  over  capitalized. 

If  the  prevailing  rate  of  interest  were  ever  to  go  to  8  per 
cent.,  where  it  was  when  many  of  our  railways  were  projected, 
the  market  value  of  i\merican  railways  would  shrink  nearly 
50  per  cent.,  but  that  would  not  affect  their  cost,  true  value,  or 
capitalization.  It  would  only  make  it  more  difficult  for  them 
to  provide  adequate  service  for  the  American  people. 

The  difficulty  with  the  railways  today,  then,  is  not  over- 
capitalization, but  where  to  get  more  capital  to  enable  them  to 
keep  pace  with  the  business  demands  made  upon  them.  With 
Boston,  New  York  City  and  New  York  State  failing  to  float 
4  per  cent,  bonds  at  par,  and  the  railways  forbidden  to  go  near 
the  "water,"  the  prospect  for  necessary  improvements  and  ex- 
tensions is  very  dry  indeed. 


144 


VALUATION  AS  ESTABLISHED  BY  TAXATION 

In  the  year  1904  the  ''estimated  true  value  of  all  property" 
in  the  United  States  as  set  forth  by  the  Director  of  the  Census 
was 

$107,104,192,410. 

In  this  total  was  included  for  "Railroads  and  their  Equip- 
ment" exclusive  of  "railroads  which  in  certain  states  are  classed 
as  real  property"  the  sum  of 

$11,244,752,000, 

being  just  $100,000  short  of  the  commercial  value  of  railway 
operating  property  compiled  for  the  Census  Bureau  by  Profes- 
sor Henry  C.  Adams,  the  statistician  of  the  Interstate  Commerce 
Commission. 

For  1904  the  Census  Bureau  found  that  the  "assessed  valua- 
tion of  all  property  (real  and  personal)  subject  to  ad  valorem 
taxation"  in  tlie  United  States  was  $38,963,381,120,  or  only 
36.4  per  cent,  of  the  estimated  true  value  of  all  property  in  the 
country  as  given  above.    (See  diagram  next  page.) 

If  the  railway  property  included  in  the  major  total  had  been 
assessed  on  the  same  basis  as  all  property,  its  assessed  valua- 
tion, exclusive  of  that  classed  as  real  property  in  certam  states, 
would  have  been  $4,095,089,728. 

Now  it  so  happens  that  Professor  Adams  in  submitting  his 
report  on  the  commercial  value  of  the  railways  for  the  Census 
Bureau  in  1904  presented  a  table  which  he  called  "A  compari- 
son between  the  Actual  Commercial  Value  of  Railway  prop- 
erty devoted  to  transportation  and  the  latest  reported  values  of 
railway  property  assessed  for  purposes  of  taxation  in  various 
states  and  territories."  For  some  unexplained  reason  no  less 
than  seven  states,  including  three  of  the  most  important,  were 
omitted  entirely  from  the  table.  Incomplete  as  it  was  this  table 
showed  that  the  railway  property  assessed  for  taxation  amounted 


145 


Diagram  and  Table. 


Estimated  True  Value  of  All  Property,  and  Assessed  Valuation  of  Portion 
Subject  to  Ad  Va-orem  Taxation  for  Each  State  and  Territory,  1904; 
vide  "Wealth,  Debt  and  Taxation,"  Oflficial  Reports  of  the  Census  Office, 
1907,  pages  28  and  41. 


HUNDREDS  OF  MILLIONS  OF  DOLLARS 

45  60  75  90  105 


MEW  YORK 

PENNSYLVANIA 

ILLINOIS 

OHIO 

MASSACHUSETTS 

CALIFORNIA 

IOWA 

MISSOURI 

MINNESOTA 

NEW  JERSEY 

INDIANA 

WISCONSIN 

TEXAS 

KANSAS 

NEBRASKA 

MARYLAND 


VIRQINIA 

COLORADO 

QEOROIA 

TENNESSEE 

WASHINGTON 

OIST.OF  COLUMBIA 

LOUISIANA 

ALABAMA 

OREQON 

NORTH  CAROLINA 

WEST  VIRQINIA 


^ 


RHODE  ISLAND 


'NORTH   DAKOTA 
MISSISSIPPI 
SOUTH  DAKOTA 


SOUTH  CAROLINA 
NEW  HAMPSHIRE 
UTAH 


ARIZONA 

DELAWARE. 

NEVADA 


Estimated   true 
value    of   all  . 
property. 


Assessed  valuation 

of  portion  subject 

to  taxation. 


United  States.... 

New  York.. 

Pennsylvania.  .  .  . 

Illinois 

Ohio 

Massachusetts.... 

California 

Iowa 

Missouri 

Minnesota 

Michigan 

New  Jersey 

Indiana 

Wisconsin 

Texas 

Kansas 

Nebraska 

Kentucky 

Maryland 

Connecticut 

Virginia 

Colorado 

Georgia 

Tennessee 

Washington 

Dist.  of  Columbia 

Louisiana 

Alabama 

Oregon 

North  Carolina  .  . 
West  Viginia  .... 

Arkansas 

Rhode  Island. .  .  . 

Maine 

Montana 

North  Dakota  .    . 

Mississippi 

South  Dakota". .  . 

Oklahoma 

South  Carolina . . . 
New  Hampshire  . 

Utah 

Indian  Territory 

Florida 

Vermont 

Idaho 

New  Mexico 

W.yoming 

Arizona 

Delaware 

Nevada 


14,769,042,207 

11,473,620,306 

8,816,556,191 

5,946,969,466 

4,956,578,913 

4,115,491,106 
4,048,516,076 
3,759,597,451 
3,343,722,076 
3,282,419,117 

3,235,619,973 
3,105,781,739 
3,838,678,239 
2,836,322,003 
2,253,224,243 

2,009,563,633 
.  1,527,486,230 
1,511,488,172 
1,414,635,063 
1.287,970,180 

1,207,542,107 
1,167,445,671 
1,104,223,979 
1,051,671,432 
1,040,383,173 

1,032,229,006 
965,014,261 
852,053,232 
842,072,218 
840,000,149 

803,907,972 
799,349,601 
775,622,722 
746,311,213 
735,802,909 

688,249,022 
679,840,939 
636,013,700 
585,853,222 
516,789,204 

487,768,615 
459,021,355 
431,409,200 
360,330,582 
342,871,863 

332,262,650 
329,572,241 
306,302,305 
230,260,976 
220,734,507 


7,738,165,639 
3,676,796,517 
1,087,844,331 
2,113,806,168 
3,251,793,834 

1,548,698,785 
642,445,336 

1,380,246,430 
857,796,773 

1.728,712,850 

1,055,669,790 
1,532,896,640 
1,359,098,346 
1,082,781,329 
372,673,858 

294,779,245 
700,881,240 
680,743,794 
690,896,142 
537,032,099 

342,170,703 
530,894.755 
428,715,337 
298,845,507 
235,233,101 

351,018,941 
326,173,663 
188,058.281 
442,418,677 
275,275,936 

249,779,108 
444,144,066 
366,514,014 
201,748,063 
159,605,057 

269,490,396 
214,239,028 
90,609,073 
209,591,593 
274,902,447 

132,756,900 


117,064,840 

168,011,776 

20.613,661 

42,565,000 
46,696,949 
45,069,545 
71,145,422 
36,270,135 


52.4 
32.0 
12.3 
35.5 
65.6 

37.6 
15.9 
36.7 
25.7 

52.7 

32.6 
49.4 
47.8 
38.2 
16.5 

14.7 
45.9 
45.0 
48.8 
41.7 

28.3 
44.5 
38.8 
28.4 
22.6 

34.0 
33.8 
22.1 
62.5 
32.8 

31.1 
55.6 
47.3 
27.0 
21.7 

39.2 
31.5 
14.2 
35.8 
53.2 

27.2 


27.1 
46.6 
20.6 

12.8 
14.2 
14.7 
30.9 
16.4 


146 


to  $3,027,144,820.  It  has  been  computed  from  such  figures  as 
are  available  that  the  assessed  values  of  the  railway  property 
in  the  omitted  states  compared  with  their  Commercial  Value  as 
found  by  Professor  Adams  were  as  follows: 


Delaware 

Maine... 

Maryland 

Massachusetts... 

Minnesota 

Oregon 

Pennsylvania .  .  .  . 
Indian  Territory. 


Total. 


Estimated 

Assessed  Value 

1904. 


$1,289,856,712 


Commercial 
Value 
1904. 


$10,153,-500 

$    17,285,000 

49,038,900 

80,146,000 

67,919,200 

132,342,000 

307,076,600 

250,052,000 

301,567,600 

466,734,000 

40,336,700 

75,661,000 

517,101,312 

1,420,608,000 

6,662,900 

79,405,000 

$2,522,233,000 


This  enables  us  to  arrive  at  the  following  approximation  of 
the  assessed  valuation  of  the  railways  of  the  United  States: 


Assessed  valuation  as  found  by  Professor  Adams. 
Assessed  value  for  States  omitted 


$3,027,144,820 
1,289,856,712 


$4,317,001,532 


If  the  proportion  of  36.4  per  cent,  between  assessed  value  and 
true  value  of  all  property  in  the  United  States  be  correct,  this 
table  approaches  a  demonstration  that  the  true  value  of  all 
railway  property  of  the  United  States  in  1904  was 

$11,841,589,000. 

That  this  estimate  is  not  far  astray  is  proved  by  the  fact  that 
in  1905,  the  year  when  taxes  were  paid  on  this  assessment,  the 
railways  of  the  United  States  paid  $63,324,551  in  taxes,  or 
slightly  over  53  cents  on  the  $100,  which  is  precisely  the  tax 
rate  applied  to  the  true  value  in  Texas  as  found  by  the  Census 
Bureau. 

That  it  should  approach  so  nearly  to  their  value  in  1904  for 
commercial  purposes,  as  estimated  by  the  official  statistician, 
is  strongly  corroborative  that  their  actual  value  is  in  excess 
of  either  aggregate.  It  is  safe  to  say  that  there  is  not  another 
great  industry   in   the   country,   where  the   return   on   invested 


147 

capital  is  so  small,  which  pays  such  a  large  proportion  of  its 
net  earnings  in  taxes,  amounting  in  the  days  of  its  greatest 
prosperity  to  over  12  per  cent. 

Moreover  these  figures  of  value  of  railway  property  assessed 
for  the  purposes  of  taxation  are  exclusive  of  the  almost  price- 
less railroad  property  assessed  in  New  York  and  New  Jersey 
as  real  estate.  As  the  New  York  Central  alone  in  1906  paid 
$2,924,593  for  taxes  on  real  estate  out  of  a  total  of  $4,126,984, 
it  is  evident  that  the  assessed  value  of  railway  real  estate  in 
New  York  must  have  been  at  least  $300,000,000  and  last  year's 
railway  taxes  in  New  Jersey  show  that  railway  real  estate  in 
that  state  must  have  had  an  assessed  value  of  over  $75,000,000. 
As  the  assessed  value  of  all  property  in  New  York  is  52.4  per 
cent,  of  the  true  value  and  in  New  Jersey  32.6  per  cent.,  these 
two  items  alone  would  add  over  $800,000,000  to  the  value  of 
railway  property  as  established  on  the  basis  of  taxable  values 
in  the  Unite..!  States,  making  an  aggregate  total  of 

$12,641,589,000. 

In  order  that  the  student  may  appreciate  the  varied  con- 
ditions as  to  taxation  which  confront  the  railways  in  the  various 
states  of  the  Union,  the  following  table  presents  the  facts  as 
to  their  mileage,  assessed  value  for  taxation,  total  taxes  paid 
and  per  mile  in  the  several  states  from  the  latest  official  re- 
turns, except  as  noted,  where  they  were  computed: 


Railway  Assessment  and  Taxes. 


Alabama 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire 

New  Jersey . 

New  York 

North  Carolina 

North  Dakota 

Ohio 

Oregon 

Pennsylvania 

Rhode  Island 

South  Carolina 

South  Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West  Virginia 

Wisconsin 

Wyoming 

Arizona 

District  of  Columbia 

Indian  Territory 

New  Mexico 

Oklahoma 

United  States 

Assessed  as  real  estate  in  N 
Assessed  as  real  estate  in  N 

Total  assessed  value.  . 


Mileage 
1905. 


4,776 
4,183 
6,477 
5,027 
1,018 
335 
3,590 
6,442 
1,465 

11,830 
6,915 
9,871 
8,841 
3,286 
4,011 
2,028 
1,434 
2,119 
8,789 
7,992 
3,672 
8,039 
3,309 
5,833 
1,180 
1,267 
2,224 
8,336 
4,210 
3,233 
9,259 
1,813 

11,043 

212 

3,160 

3,067 

3,561 

11,983 
1,774 
1,058 
3,950 
3,367 
2,929 
7,211 
1,247 
1,821 
32 
2,638 
2,534 
2.625 


217,017 
ew  York . 
ew  Jersey 


Assessed    for 

taxation 

1904. 


$53,926,026 

34,709,623 

92,378,5.50 

49,492,135 

120,493,648 

10,153,500 

21,817,478 

63,105,810 

10,115,378 

425,709,055 

165,863,367 

57,535,160 

60,093,534 

77,658,040 

29,044,195 

49,038,900 

57,919,200 

307,076,600 

196,795,000 

301,567,600 

29,847,640 

97,916,869 

36,759,827 

46,082,853 

13,778,049 

22,625,000 

231,655,525 

229,582,064 

69,480,974 

22,160,304 

133,858,945 

40,336,700 

517,101,312 

15,832,003 

29,467,716 

14,354,930 

58,536,566 

95,209,785 

20,682,461 

27,344,020 

63,269,623 

26,066,949 

28,771,358 

218,024,900 

7,498,232 

6,667,349 

2,486,024 

6,662,900 

8,511,538 

11,936,317 


$4,317,001,532 

300,000,000 

75,000,000 


$4,692,001,532 


Taxes  paid 
1905. 


$833,121 

789,442 

1,919,125 

1,374,077 

1,281,751 

101,535 

469,938 

831,436 

375,678 

5.186,887 

3,096,288 

2,089,289 

2,398,209 

1,180,298 

795,874 

490,389 

579,192 

3,070,766 

2,680,851 

2,189,953 

648,417 

1,594,094 

76.5,322 

l,296,q^6 

282,697 

395,328 

1,852,786 

5,066,316 

642,466 

805,756 

4,297,601 

403,367 

3,586,872 

222,2.33 

49.5,750 

325,306 

832,869 

1,274,694 

461,885 

1.56,850 

1,219,316 

826,722 

599,804 

2,262,303 

200,491 

230,792 

41,966 

33,329 

278,618 

453.816 


$63,324,551 


Per  cent 

of  tax  on 

assessed 

value. 


1.544 
2.274 
2.077 
2.776 
1.063 
1.000 
2.154 
1.317 
3.713 
218 

.866 

.631 

.997 
519 

.740 

.000 
1.000 
1.000 
1.362 

.726 
2.226 
1.628 
2.081 
2.813 
2.051 
1.746 

.799 
2.206 

.924 
3.636 
3.210 
1.000 

.694 
1.403 
1.682 
2.266 
1.422 
1.3.38 
1.991 

.573 
1.927 
3.171 
1 . 7.51 
1.037 
2.673 
3.476 
1.285 

.500 
3.273 
3.802 


1.467 


Tax  rate 
per  $100  of 

estimated 
true  value. 


$0.56 
0.63 
0.74 
1.00 
0.61 
0.60 
0.68 
0.78 
0.61 
0.67 
0.98 
0.61 
0.71 
0.72 
0.92 
0.94 
0.76 
1.06 
0.79 
0.61 
0.67 
0.62 
0.60 
0.71 
0.30 
0.84 
0.70 
0.97 
0.^2 
0.66 
0.87 
0.66 
0.56 
0.81 
0.70 
0.70 
0.74 
0.53 
0.63 
0.55 
0.58 
0.98 
0.73 
0.78 
0.35 
0.57 
0.34 
0.07 
0.47 
0.56 


$0.74 


149 

As  all  property  in  the  United  States  is  assessed  on  an  average 
of  36.4  per  cent,  of  its  ^estimated  true  value  (Table  16,  Census 
Report,  Wealth,  Debt  and  Taxation  1907)  this  assessed  value 
of  $4,692,001,532  represents  an  estimated  true  value  of  approxi- 
mately 

$12,890,000,000. 

The  variation  of  $248,411,000  between  this  result  and  that 
arrived  at  on  page  .  .  is  due  to  the  disturbance  of  the  ratio  be- 
tween the  assessed  value  and  the  "estimated  true  value"  by  the 
introduction  of  estimates  for  the  states  omitted  in  the  Census 
table  of  assessed  values  and  the  estimates  of  real  estate  values 
excluded  from  the  assessed  values  in  New  York  and  New 
Jersey. 

Whichever  figure  is  accepted  establishes  the  fact,  that  on 
the  basis  of  assessed  valuations  and  taxes  compared  with  their 
relation  to  the  official  estimated  true  value  of  all  property  in 
the  United  States,  the  value  of  American  railways  for  taxation 
purposes  is  greater  than  their  net  capitalization  of 

$11,671,940,649. 

An  analysis  of  the  last  two  columns  in  the  above  table  demon- 
strates that  the  rate  paid  by  the  railways  on  the  assessed  value 
of  their  property  is  from  i  to  7  times  greater  than  the  tax  rate 
paid  per  $Tco  of  estimated  true  value  of  all  property  in  the 
United  States.     In  the  country  at  large  it  is  twice  as  great. 

Texas  aitords  a  striking  illustration  of  the  difference  between 
the  tax  levied  on  railways  and  the  rate  paid  on  general  prop- 
erty. Although  the  taxes  levied  on  the  railways  of  Texas  were 
only  1.338  per  cent,  on  their  assessed  value,  this  was  2.53  times 
more  than  the  average  rate  levied  on  private  property  through- 
out the  state.  In  1906  the  Texas  railways  were  assessed  at  $10,- 
907  per  mile  for  purposes  of  taxation  and  the  taxes  actually  paid 
by  them  amounted  to  $1,594,825  or  1.212  on  their  assessed  value 
which  is  2.3  times  more  than  the  rate  levied  on  the  true  value 
of  all  property  in  Texas.  This  would  make  it  appear  that  their 
true  value  for  taxation  purposes  was  $25,086  per  mile,  or  $8,555 
more  than  the  valuation  put  on  them  by  the  State  Railroad  Com- 
mission. 


150 


According  to  the  assessors,  the  value  of  Texas  railways  in- 
creased $2,456  per  mile  between  1905  and  1906,  while  the  Com- 
mission could  only  find  that  their  value  had  increased  $11  per 
mile,  which  shows  the  difference  whether  the  appraiser  is  seek- 
ing to  increase  the  revenues  of  the  state  or  for  excuse  to  reduce 
the  revenues  of  the  railways. 

In  passing,  it  is  worthy  of  note  that  while  the  net  capitaliza- 
tion of  the  railways  of  the  United  States  has  increased  only  28.7 
per  cent,  during  the  last  ten  years  their  taxes  have  increased  over 
87  per  cent. 

The  railways  of  Minnesota,  according  to  the  State  Commis- 
sion, paid  $3,015,676  taxes  in   1905  against  $1,911,707  in   1904. 

Where  the  railways  of  New  Jersey  are  credited  in  the  above 
table  with  having  paid  only  $1,852,786  taxes  in  1904,  the  total 
tax  upon  them  for  state  uses  in  1906  was  $3,509,371. 

With  these  examples  of  what  consideration  the  railways  are 
receiving  at  the  hands  of  taxing  bodies,  I  leave  this  phase  of 
the  subject. 


151 


XII 
RECEIVERSHIPS  AND  THE  RAILWAYS 

Among  the  many  things  laid  at  the  door  of  alleged  over- 
capitalization of  American  railways  are  the  periodic  succession 
of  receiverships  that  have  seared  their  history  with  the  brand 
of  financial  tribulation.  Even  the  fairest  writers  on  railway 
economics  have  not  escaped  this  pitfall  dug  by  political  agi- 
tators for  the  delusion  of  the  unwary.  Professor  Emory  R. 
Johnson  in  his  "American  Railway  Transportation,"  one  of  the 
ablest  and  most  instructive  of  recent  works  on  the  subject, 
falls  into  the  popular  error,  when  he  says,  "The  large  number  of 
railroad  receiverships  in  the  United 'States  has  been  the  result 
of  several  causes,  of  which  the  first  and  most  potent  has  been 
over-capitalization." 

As  a  matter  of  fact,  there  is  not  the  slightest  evidence  to 
sustain  such  a  sweeping  assertion.  That  over-capitalization  has 
in  a  few  flagrant  cases  contributed  to  forcing  companies  into 
the  hands  of  receivers  may  be  admitted.  But  the  four  "most 
potent"  causes  of  railroad  receiverships  in  the  United  States 
have  been  faulty  location,  over-construction,  over-competition 
and  successive  business  depressions. 

This  is  not  the  assertion  of  a  theory  but  of  conditions  sus- 
ceptible of  proof.  Where  roads  have  been  originally  located 
correctly  with  good  judgment  where  needed,  and  where  the 
immediate  prospects  or  far-seeing  prescience  justified  large  ex- 
penditures, receiverships  have  been  the  rare  exceptions. 

In  discussing  this  phase  of  the  subject  one  salient  fact  should 
never  be  lost  sight  of — only  the  capitalization  represented  by 
bonds  has  any  bearing  on  the  question  of  receivership.  It  is  only 
when  the  security  of  the  bondholder  is  imperilled  that  the  pro- 
tection of  the  courts  is  invoked. 


152 


The  Halt  of  1837. 

The  first  financial  storm  the  railways  had  to  meet  was  that 
of  1837,  when  the  initial  cost  of  construction  of  the  early  roads 
had  imposed  a  heavy  burden  upon  the  capital  and  industry  of 
the  country.  The  result  was,  as  we  read  in  Poor's  Manual, 
that  in  many  of  the  states,  particularly  in  the  Western  and 
Southern,  large  sums  were  expended  upon  lines  which  were 
wholly  abandoned.  Charters  granted  and  work  begun  in  1834- 
1836  were  held  in  abeyance,  not  to  be  revived  or  resumed  until 
along  in  the  early  forties,  after  the  effect  of  the  revulsion  began 
to  wear  off. 

The  Galena  and  Chicago  Union,  the  forerunner  of  the  Chi- 
cago and  Northwestern,  affords  an  illustration  of  what  hap- 
pened to  the  railways  of  the  United  States  at  that  time.  On 
January  10,  1836,  it  received  a  special  charter  from  the  legis- 
lature of  Illinois  to  build  a  railroad  out  into  the  prairie  country 
toward  the  Mississippi.  An  amended  charter  was  granted  in 
1837,  under  which  a  short  preliminary  survey  was  made  and 
940  acres  of  wood  land  nine  miles  west  of  Chicago  was  se- 
cured as  a  source  of  fuel  supply.  'Then,"  says  the  historian, 
*'the  financial  'panic'  beginning  in  the  summer  of  1837  put  a 
stop  to  this  and  many  other  railroad  projects,  not  only  in  Illi- 
nois but  all  over  the  United  States."  The  actual  construction 
of  the  Galena  and  Chicago  Union  was  not  resumed  until  1847. 

It  was  the  financial  upheaval  of  1837  that  induced  the  state 
of  Michigan  to  take  over  the  construction  of  the  Detroit  and 
St.  Joseph  railroad  chartered  in  1836  (the  original  Michigan 
Central)  and  the  Erie  and  Kalamazoo  Railroad  chartered  in  1833 
(now  a  part  of  the  Lake  Shore  and  Michigan  Southern  Rail- 
way). The  former  company  was  capitalized  at  $2,000,000,  but 
no  work  had  been  done  upon  it  when  the  state  of  Michigan  ap- 
pointed commissioners  to  complete  the  construction.  Appro- 
priations were  made  for  this  purpose  in  1838,  1839,  1843  ^^^ 
1844,  and  in  1846  the  road  was  completed  144  miles  to  Kala- 
mazoo. 

A   report  to   the   legislature  when   work   had   proceeded    no 


153 


miles  to   Marshall  gives   the  following  details   respecting   this 
piece  of  forced  government  ownership: 

Cost  op  Michigan  Central  and  Michigan  Southern 
TO  December  31,  1844. 


Central  (110  miles  completed) 

Southern  (initial  point  at  Monroe) . 


10%  added  for  interest  during  construction  and  other  incidental  expenses . . .  . 

Palmyra  and  Jackson  Railroad,  cost  including  interest 

Locomotives  and  cars  on  Central  Railroad $110,000 

Ditto  on  Southern  Railroad 51,000 


Total. 


$1,842,308 
936,295 


$2,778,603 

277,860 

30,000 

161,000 

$3,257,963 


Governor  Barry  reported  in  favor  of  selling  these  works, 
which  were  subsequently  sold  to  Boston  capitalists  for  $2,- 
000,000  for  the  Central  and  $500,000  for  the  Southern.  They 
were  paid  for  in  state  bonds  which  the  shrewd  New  Englanders 
had  bought  at  70  cents  on  the  dollar,  thereby  obtaining  for 
$1,750,000  property  which  had  cost  at  least  $3,500,000.  All  told, 
Michigan  spent  $4,500,000  and  305,000  acres  of  public  land  on 
her  railroads,  and  they  were  worth  the  expenditure,  although 
Boston  financiers  bought  them  in  at  what  would  now  be  called 
"bargain  counter"  prices.  The  purchasers  had  to  go  into  the 
markets  to  raise  additional  funds  for  their  rehabilitation,  com- 
pletion, extension  and  equipment. 

.The  Panic  of  1857. 

After  the  country  recovered  from  the  effects  of  the  "financial 
catastrophe"  of  1837,  the  extension  of  railways  into  every  quar- 
ter of  the  West  proceeded  with  unprecedented  rapidity  until 
checked  temporarily  by  another  panic;  when,  again  we  read 
in  the  histories,  "A  great  financial  revulsion  came  in  1857  and 
at  once  put  a  stop  to  further  construction  of  this  and  many 
other  lines  of  railroad  and  this  company  became  bankrupt." 
The  road  here  referred  to  was  the  Chicago,  St.  Paul  &  Fond 
du  Lac  Railroad,  all  of  whose  property,  franchises  and  rights 
were  purchased  at  foreclosure  sale  by  the  newly  organized  Chi- 
cago and  Northwestern  Railway  for  $10,849,938  in  stocks  and 
bonds  of  the  purchasing  company.  _ 


154 


A  like  process  went  on  all  over  the  country.  The  financially 
sound  companies — i.  e.,  those  which  had  not  been  over-built 
into  unproductive  territory — buying  in  the  property  of  the 
bankrupt  companies  below  cost  of  construction,  but  almost 
never  below  the  face  of  the  funded  debt. 

The  Receiverships  of  1873. 

Scarcely  had  the  railways  recovered  from  the  business  de- 
pression of  1857,  when  the  civil  war  brought  nearly  all  indus- 
trial progress  to  a  standstill  and  by  its  legacy  of  inflated  cur- 
rency prepared  the  way  for  the  financial  convulsion  of  1873. 
Between  i860  and  1865  only  3,303  miles  of  railway  were  built 
in  the  United  States,  but  with  the  return  of  peace  in  the  latter 
year  construction  was  resumed  with  feverish  activity.  The 
mileage  jumped  from  35,085  miles  in  1865  to  70,651  in  1873 — 
that  is,  it  more  than  doubled  in  eight  years. 

In  i860  there  were  1026  inhabitants  to  each  mile  of  railway; 
in  1870  the  proportion  was  only  730,  and  by  1873  it  had  fallen 
to  590  per  mile  of  road.  As  experience  at  that  stage  in  the  de- 
velopment of  railway  economies  had  demonstrated  that  "to  en- 
able railroads  to  be  operated  at  a  profit  a  population  of  at  least 
850  to  a  mile  of  railroad  is  necessary  in  this  country"  (Poor's 
Manual  1877-1878),  the  over  building  of  railways  had  passed 
below  the  margin  of  safety  in  1870,  and  was  far  below  it  in 
1873,  when  the  country  entered  upon  that  period  of  depression 
from  which  it  did  not  emerge  until  specie  payment  was  re- 
sumed and  all  business  was  once  more  placed  on  a  sound  money 
basis. 

No  fine-drawn  theory  is  needed  to  explain  the  railway  re- 
ceiverships of  1874  to  1877.  It  is  told  in  unmistakable  language 
in  the  following  table  of  earnings — gross  and  per  mile. 


• 

Gross  Earnings. 

Per  Mile. 

1872 

$465,241,055 
526,419,935 
620,466,016 
503,065,505 
495,257,959 
472,909,272 

$8,116 

1873 

7,933 

1874 

7,513 

1875 .                ,            

7,011 

1876 

6,765 

1877 

6,381 

155 

The  startling  decrease  in  gross  earnings  per  mile  between 
1872  and  1877  shows  *the  combined  effect  of  the  business  de- 
pression and  over-construction.  In  spite  of  a  slight  increase 
in  gross  earnings,  it  will  be  perceived  that  there  was  a  decrease 
of  more  than  20  per  cent,  in  earnings  per  mile.  The  large  re- 
ceipts per  mile  previous  to  1871  had  furnished  the  stimulus 
for  the  over-construction  which  swept  scores  of  railways  into 
bankruptcy  during  the  business  stagnation  which  waited  on  the 
restoration  of  our  currency  to  a  healthy  basis. 

In  passing,  it  is  worthy  of  note  that  twenty  years  had  to 
elapse  before  (in  1901)  the  gross  receipts  of  the  railways  of  the 
United  States  reached  the  level  per  mile  from  which  they  fell 
as  shown  in  the  foregoing  table. 

An  examination  of  the  reports  of  the  principal  systems  which 
went  into  the  hands  of  receivers  in  1874  discloses  the  fact  that 
their  difficulties  proceeded  from  one  of  two  causes — either  they 
were  under  construction  involving  the  raising  of  large  sums 
before  they  had  begun  to  earn  sufficient  income  to  pay  operat- 
ing expenses;  or  their  income  was  so  depleted  by  the  reduction 
of  rates  below  a  profitable  basis  that  the  cost  of  operation  ab- 
sorbed too  large  a  proportion  of  their  earnings. 

The  Northern  Pacific,  which  was  being  built  toward  the  sun- 
set, is  an  example  of  the  former  class.  It  operated  555  miles 
to  practically  nowhere,  and  had  issued  $30,780,940  bonds  on 
which  it  had  realized  only  $22,766,923.  It  was  paying  an  aver- 
age of  7-3/10  per  cent,  on  its  debt  and  its  earnings  from  opera- 
tion in  1874  were  only  $365,343,  or  $22,876  more  than  operat- 
ing expenses,  or  about  one-tenth  as  much  as  the  interest  on  its 
funded  debt.  It  was  only  through  the  process  of  a  receiver- 
ship and  a  reorganization,  in  which  the  bondholders  took  pre- 
ferred stock  for  their  principal  and  interest,  that  the  work  of 
constructing  this  great  road  was  continued. 

The  Erie,  that  road  prolific  in  lessons  of  railroad  enterprise 
and  financiering,  affords  a  striking  example  of  the  second  class. 
But  there  is  no  need  to  drag  in  over-capitalization  to  account 
for  its  receivership  in  1875,  which  followed  "as  the  night  the 
day"  from  the  business  causes  revealed  in  the  following  table. 


156 


Business  of  the  Erie,   1869  to  1875. 


Passenger 

Passenger 

Per 

Freight  Ton 

Freight 

Per 

Mileage 

Receipts 

Passenger 

Mileage 

Receipts 

Ton 

Year. 

(thousands). 

(thousands). 

Mile 
(cents). 

(thousands). 

(thousands). 

Mile 

(cents) . 

1868-69. . . 

128,455 

$4,043 

3.15 

817,829 

$12,583 

1.54 

1869-70. . . 

133,589 

3.968 

2.97 

898,862 

11,983 

1.33 

1870-71... 

148,242 

3,972 

2.68 

897,446 

12,861 

1.44 

1871-72. . . 

156,143 

3,329 

2.13 

965,925 

14,509 

1.62 

1872-73. . . 

164,633 

3,651 

2.22 

1,032,986 

15,015 

1.45 

1873-74. . . 

160,204 

3,705 

2.31 

1,047,420 

13,740 

1.31 

1874-75. . . 

155,396 

3,461 

2.23 

1,016,618 

12,287 

1.21 

The  reduction  in  passenger  and  freight  rates  between  1871 
and  1875  tells  the  tale — and  it  is  an  old  one — of  this  Erie  re- 
ceivership. If  the  railroad  had  received  the  same  rates  in  1875 
that  it  did  in  1870-71,  its  receipts  from  passengers  would  have 
been  $4,164,612  instead  of  $3,461,304,  and  from  freight  $14,639,- 
299  instead  of  only  $12,287,399. 

The  same  cause — reduced  rates — produced  the  same  results 
throughout  the  country.  The  year  1876  showed  an  increase  of 
6,092,000  tons  of  freight  moved  over  the  previous  year  with  an 
absolute  decrease  of  $2,922,858;  and  Poor's  Manual  presents  the 
following  table  showing  the  conditions  prevailing  in  the  three 
states  of  Massachusetts,  New  York  and  Ohio  as  illustrative 
of  the  effect  of  reduced  rates  in  New  England,  the  Middle 
States  and  the  Middle  West: 


TONS   MOVED. 

Rate  per  Ton  Mile 
in  Cents. 

1876. 

1871. 

Increase. 

1876. 

1871. 

Massachusetts 

11,327,502 
22,891,828 
29,348,788 

8,934,104 

14,174,544 
18,554,340 

2,393,398 

8,717,284 
10,794,459 

2.04 
1.19 
1.12 

3.11 

New  York 

1.77 

Ohio 

1.82 

Total 

63,568,129 

41,662,988 

21,905,141 

1.23 

1.94 

This  showed  a  decrease  of  .71  of  a  cent  per  ton  mile  for  these 
states — a  ratio  which,  if  applied  to  the  whole  country,  meant 
that  in  1876  the  railways  received  $132,000,000  less  than  they 
wpuld  have  received  had  the  rates  of  1871  been  in  effect. 

Evidently  it  was  the  watering  of  the  rates  and  not  of  the 
capital  of  the  railways  that  was  the  "most  potent"  cause  of  the 


157 


receiverships  of  1874- 1877,  involving  the  following  mileage  and 
capital  : 

Involved  in  Receiverships  in  1874-187 7. 


Mileage. 

Capital  Stock. 

Funded  Debt. 

1874 

1875 

6,825 
6,280 
3,692 
3.917 

$235,179,293 

211,740,414 

87,181,928 

65,454,116 

$236,285,961 
204,312,038 

1876 

114,783,799 

1877 

95,937,385 

Total 

20,714 

$599,555,751 

$641,319,183 

Total  Capitalization 

$1,140,874,934 

As  the  total  operated  mileage  of  the  country  in  1874  was 
only  69,273,  capitalized  at  $4,221,763,594,  it  is  evident  that 
two-sevenths  of  the  mileage  and  more  than  one-quarter  of  the 
capitalization  was  involved  in  the  financial  tribulations  of  these 
four  years  of  business  stagnation. 

Incomplete  as  are  the  reports  of  the  cost  of  construction  of 
these  20,714  miles,  they  show  an  aggregate  of  $1,032,783,972 
expended,  or  within  $107,090,962  of  the  capitalization  involved, 
without  counting  in  the  discounts  paid  to  obtain  funds  in  many 
cases,  or  the  appreciation  of  much  of  the  property  and  rights 
which  had  accrued  during  the  forty  years  of  railway  construc- 
tion. 

Before  they  were  reorganized,  the  original  investment  of  the 
stockholders  in  some  of  the  roads  was  entirely  wiped  out,  in 
some  it  was  scaled  down  and  in  others,  as  in  the  case  of  the 
Erie,  working  capital  was  obtained  by  assesments  on  stock- 
holders. The  Northern  Pacific  emerged  from  the  receivership 
with  its  bonded  indebtedness  and  deferred  interest  converted 
into  preferred  stock. 


It  was  not  until  1880  that  railway  earnings  showed  that  they 
had  partially  recovered  from  the  severe  drag  that  followed,  the 
depression  of  1873-74.  But  so  urgent  had  been  the  demand 
for  more  railways  in  the  meantime  that,  while  the  gross  earn- 
ings increased  from  $520,466,016  in  1874  to  $613,733,610  in 
1880,  the  earnings  per  mile  were  still  below  those  of  1874. 

A  study  of  the  dividends  paid  during  the  period  of  depression 


158 


reveals  how  exhausting  was  the  process  through  which  the 
railways  were  pumped  dry  of  any  water  that  had  been  injected 
into  their  stock  prior  to  1871 — and  even  their  critics  admit  that 
it  was  comparatively  little: 


Dividends  During  Depression  of  1873. 


Dividends  Paid 
on  Stock. 

Per  Cent 
on  Stock. 

1872    

$64,418,418 
67,120,709 
67,042,942 
74,294,208 
68,039,668 
58,536,312 
53,629,368 
61,681.470 
77.115,371 

3  91 

1873  

3.45 

1874 

3.37 

1875 

3.38 

1876 

3.03 

1877 

2.53 

1878 

2.34 

1879 

2.57 

1880 

2.84 

From  which  it  is  apparent  that  the  low  point  in  the  profits 
from  investments  in  railway  stocks  for  this  period  was  touched 
in  1878.  There  was  a  further  recovery  which  reached  2.94  per 
cent,  in  1881,  but  from  that  year  to  this  dividends  on  gross  cap- 
ital stock  have  never  risen  to  the  level  of  1872,  whereas  they 
were  destined  to  go  many  points  lower. 

So  large  a  proportion  of  capital  stock  in  1876  was  non-paying 
that  the  dividend  rate  on  paying  issues  was  7.26  per  cent.,  which 
it  is  interesting  to  compare  with  the  5.78  per  cent,  paid  on  divi- 
dend paying  stock  during  the  prosperous  year  1905. 

The  Recession  of  1885. 

With  the  return  of  good  times  and  a  sound  currency  in  1880, 
there  came  a  resumption  of  railway  building  which  proved  that 
the  country  was  anxious  for  more  transportation  facilities,  al- 
though in  much  of  the  territory  into  which  roads  were  ex- 
tended it  had  not  the  traffic  in  sight  to  support  them.  In  the 
four  years  1880-1883  inclusive,  over  31,000  miles  were  added 
to  the  mileage  in  the  United  States,  being  equivalent  to  an  in- 
crease of  nearly  40  per  cent,  over  the  mileage  of  1879.  Nothing 
like  it  had  been  known  before,  although  it  has  been  equalled 
since.     This  phenomenal   construction  was  accompanied  by  an 


159 


increase  of  capitalization  amounting  to  no  less  than  $5,091 
per  mile,  so  that  in  1883  the  gross  capitalization  of  American 
railways  was  $64,768  per  mile.  While  much  of  this  increase  was 
through  duplication,  it  has  been  estimated  that  $550,000,000  was 
either  wholly  fictitious  or  represented  the  reckless  and  sometimes 
unscrupulous  financiering  of  a  period  of  feverish  speculation  and 
over-production.  The  paralleling  of  the  New  York  Central 
by  the  West  Shore,  which  was  scarcely  opened  for  business 
before  it  went  into  a  receivership,  to  be  bought  for  what  it  was 
worth  under  foreclosure  by  the  road  it  was  intended  to  rival; 
and  the  construction  of  the  "Nickel  Plate"  solely  for  specu- 
lative purposes,  were  two  characteristic  incidents  of  the  years 
preceding  the  "panic  of  1884."  Only  the  excellence  of  the  crops 
and  favorable  trade  balances  tided  the  country  over  a  universal 
business  catastrophe  which  was  predicted  by  conservative  ob- 
servers. 

Such  were  the  conditions  that  presaged  another  period  of 
receiverships  for  railways  in  1884,  as  shown  in  the  following 
table : 

Receiverships   1880-1885. 


Year. 

Number 
of  Roads. 

Mileage. 

Capital 
Involved. 

1880 

13 
5 
12 
11 
36 
46 
12 
10 

885 
110 
912 
1,990 
8,846 
8,557 
1,770 
1,204 

$140,265,000 

3,742,000 

39,074,000 

108,470,000 

669,088,000 

466,416,000 

67,584,000 

92,500.000 

1881 

1882 

1883 

1884 

1885 

1886 

1887 

Total 

145 

24,274 

$1,587,139,000 

During  the  year  1884  no  less  than  48  companies  operating 
15,359  miles  of  road  with  an  aggregate  capitalization  of  $708,- 
594,046  (exclusive  of  nearly  $100,000,000  funded  debt  of  the 
Philadelphia  &  Reading  Railroad  involved  with  the  Philadelphia 
&  Reading  Iron  &  Coal  Company)  were  in  the  hands  of  re- 
ceivers, against  which  the  construction  account  showed  a  cost 
of  $612,419,335,  with  many  omissions. 


160 


While  a  large  number  of  the  roads  included  in  the  foregoing 
table  were  taken  out  of  the  hands  of  the  courts  through  re- 
organizations, the  following  statement  of  the  foreclosure  sales 
during  the  three  years  1885- 1887  show  how  the  majority  of 
them  fared: 


Railroad  Foreclosure  Sales  1885-1887, 


Year. 

Roads. 

Mileage. 

Capitalization. 

1885 

26 
39 

28 

2,898 
7,858 
5,129 

$267,956,000 

1886 

420,367,000 

1887 

311,649,000 

93 

15,885 

$999,972,000 

Through  these  proceedings  and  the  accompanying  reorgani- 
zations it  is  estimated  that  investments  in  about  $500,000,000 
par  value  of  capital  stock  were  wiped  out.  By  1887  the  so- 
called  water  in  American  railways  had  been  pretty  effectually 
evaporated;  and  the  track  was  clear  for  another  period  of  con- 
struction, expansion  and  competition. 

Billions  Involved  in  the  Panic  of   1893. 

Between  the  years  1877  and  1887,  before  the  Interstate  Com- 
merce Act  was  passed,  there  had  been  a  remarkable  reduction 
in  rates.  In  the  former  year,  according  to  Judge  Cooley, 
chairman  of  the  Commission,  "the  rates  charged  on  first,  sec- 
ond, third  and  fourth  classes  of  freight  from  New  York  to 
Chicago  were,  respectively,  100,  75,  60  and  45  cents  a  hundred 
pounds.  They  are  now  (1887)  75,  65,  50  and  35  cents,  but  the 
classification  as  to  many  articles  has  in  the  meantime  been 
reduced  so  that  the  actual  reduction  is  greater  than  these  fig- 
ures would  indicate.  Rates  from  Chicago  to  New  York  are 
also  proportionately  less.  A  similar  result  has  been  apparent 
elsewhere." 

In  1888,  at  the  end  of  a  decade  during  which  freight  rates 
had  been  reduced  fully  25  per  cent.,  the  condition  of  the  rail- 
ways, as  summarized  from  the  first  reports  to  the  Commission, 
was  as  follows : 


161 


First  Official  Railway  Statistics,  i 


Mileage  (official)  (miles) 

Locomotives  (number) 

Passenger  cars  (number) 

Freight  cars  (number) 

Capital  stock $3,864,468,055 

Funded  debt 3,869,216,365 

Total  capital 

Cost  of  road  and  equipment  (1889) 

Passengers  carried  one  mile  (niunber) 

Average  number  in  a  train 

Receipts  from  passengers 

Revenue  per  passenger  per  mile  (cents) 

Average  cost  of  carrying  one  passenger  per  mile  (cents) 

Tons  of  freight  carried  one  mile  (number) 

Average  haul  per  ton  (miles) 

Revenue  per  ton  per  mile  (cents) 

Average  cost  of  carrying  one  ton^per  mile  (cents) 

Interest  on  bonds  and  other  debt 

Dividends  paid 

Number  of  employes  (1889) 

Compensation 


136,883 
29,036 
25,665 

885,668 


$7,733. 

7,271, 

10,950, 

J237, 


,684,420 
,498,570 
,000,000 
42 
,266,377 
2.349 
2.042 
61,027,000,000 
127.36 
1.001 
0.630 
,288,021 
,943,041 
704,473 
.294.024 


$205, 
78, 


S400. 


A  comprehension  of  the  items  in  this  table  is  necessary  to 
an  understanding  of  the  causes  leading  up  to  the  crash  of  1893. 
With  the  recovery  from  the  recession  of  1884,  railway  build- 
ing was  resumed  with  a  rush,  so  that  in  the  six  years  1887  to 
1892,  inclusive,  no  less  than  40,803  miles  of  line  or  over  30 
per  cent,  was  added  to  the  mileage  of  1886.  Almost  as  many 
more  miles  of  subsidiary  track  was  laid  during  the  same  period, 
so  that  it  is  not  at  all  surprising  to  find  that  by  1892  the  gross 
capitalization  had  increased,  to  $9,686,146,813,  of  which,  how- 
ever, $1,391,457,053  was  duplicated  through  intercorporate  own- 
ership. 

That  a  large  expansion  of  capital  was  necessary  to  meet  the 
demands  of  traffic  is  proved  by  the  fact  that  the  passengers 
caried  one  mile  in  1892  numbered  13,362,898,299,  an  increase 
of  30  per  cent,  over  1888,  and  the  tons  of  freight  caried  one 
mile  were  88,241,050,225,  an  increase  of  over  44  per  cent,  dur- 
ing the  same  period. 

An  increase  of  30  per  cent,  in  passenger  service  and  of  44 
per  cent,  in  the  freight  service  performed  for  the  public  would 
appear  to  justify  an  addition  of  30  per  cent,  to  the  mileage  con- 
structed by  an  addition  of  only  25  per  cent,  to  the  gross  cap- 


162 

italization,  irrespective  of  how  that  capitalization  was  swelled 
with  "water"  or  intercorporate  ownership. 

And  so  in  fact  it  would,  but  for  the  undermining  effect  of 
the  reduction  in  rates  which  attended  these  efforts  to  keep 
abreast  of  the  increasing  demands  for  transportation.  The 
following  table  shows  the  actual  receipts  of  1892  from  passen- 
gers and  freight  compared  with  what  they  would  have  been 
had  the  rates  of  1888  been  sustained: 


Gross  passenger  earnings. 
Gross  freight  earnings. . . . 


Total $1,086,121,750 


1892. 
Actual. 


$286,805,708 
799,316,042 


1892. 

On  the  Rates  of 

1888. 


$313,930,500 
833,392,400 


$1,197,322,900 
Loss  in  revenue  due  to  reduction  of  rates $111,201,150 

It  only  needed  another  year's  continuation  of  the  suicidal 
policy  of  rate  reduction,  coincident  with  a  recession  in  busi- 
ness, to  plunge  scores  of  railroad  companies  into  bankruptcy. 
And  despite  the  phenomenal  passenger  traffic  of  the  World's 
Fair  year,  the  coincidence  happened  in  1893,  although  only 
partially  reflected  in  the  official  statistics  for  that  year.  The 
full  effect  of  the  havoc  wrought  in  railway  receipts  by  a  con- 
tinuous reduction  in  rates  was  shown  in  a  "deficit  from  opera- 
tions" of  $45,851,294  in  1894,  where  there  would  have  been  a 
surplus  of  $109,253,085  had  the  rates  of  1888  been  maintained. 

Commenting  on  what  followed,  the  Official  Statistician  said: 
"Railway  construction  was  arrested,  development  of  railway 
equipment  was  nearly  stationary,  railway  employes  were  re- 
duced and  that  after  a  series  of  years  which  showed  an  aver- 
age annual  increase  in  the  payroll  of  42,215  employes.  *  *  * 
Every  item  on  the  income  account  shows  a  decrease.  *  *  * 
To  meet  the  deficit  occasioned  by  the  payment  of  the  usual 
dividends  to  stockholders  and  to  operate  the  property,  it  was 
found  necessary  to  reduce  the  corporate  investments  in  stocks 
and  bonds  by  $7,094,413,  to  reduce  the  cash  and  current  as- 
sets by  $44,402,673,  and  to  deplete  the  fund  of  materials  and 


I 


163 

supplies  so  that-  the  stock  on  hand  was  worth  $13,988,383  less 
at  the  close  than  at  the  beginning  of  the  year/' 

As  a  matter  of  act,  the  statistician's  own  figures  show  that 
the  usual  dividends  were  not  paid  to  stockholders,  being  only 
$95,515,226  on  $4,834,075,659  outstanding  in  1894  against  $100,- 
929,885  on  only  $4,668,935,418  in  1893.  Had  the  "usual  divi- 
dends" of  1893  been  paid  in  1894  they  would  have  been  $104,- 
414,000,  or  nearly  $9,000,000  more  than  they  were. 

The  real  reason  why  the  several  funds  mentioned  by  Profes- 
sor Adams  had  to  be  reduced  or  depleted  was  not  the  payment 
of  the  "usual  dividends"  or  the  operation  of  the  property,  but 
the  fact  that  the  average  passenger  receipts  had  been  reduced 
from  2.349  cents  per  mile  in  1888  to  1.986  cents  in  1894  and 
the  average  freight  receipts  had  declined  from  i.ooi  cents  to 
0.860  cents  during  the  same  period.  The  consequent  loss  in 
passenger  receipts  was  $51,869,070,  and  in  freight  receipts  $113,- 
272,350;  making  a  total  loss  due  to  this  cause  alone  of  $164,- 
142,420. 

"This  first  and  most  potent  cause"  resulted  in  placing  192 
roads,  with  a  mileage  of  40,818  miles  and  a  capitalization  of 
about  $2,500,000,000,  under  the  control  of  receiverships  as  of 
June  30,  1894,  which  led  the  statistician  to  exclaim,  "This  as 
a  record  of  insolvency  is  without  a  parallel  in  the  previous 
history  of  American  railways,  except  it  be  in  the  period  from 
1838  to  1842." 

On  a  preceding  page  (61)  is  given  a  brief  table  of  the  re- 
ceiverships from  1894  to  1899,  inclusive,  from  data  supplied  by 
the  official  reports.  Poors'  Manual  for  1900,  in  an  exhaustive 
review  of  the  subject,  gives  a  complete  list  of  the  roads  placed 
under  receiverships  and  sold  under  foreclosures  during  the  years 
1884  to  1899,  inclusive,  of  which  the  following  are  summaries: 


164 


Summary   by    Years   of   Number,   Mileage    and    Capital    of 
Railways  Placed  in  Receivers'  Hands  1884-1899: 


Year. 

No. 

Mileage. 

Stocks. 

Bonds. 

Total 
Capitalization. 

1884 

36 
46 
12 
10 
21 
21 
21 
30 
40 
119 
45 
33 
35 
21 
19 
12 

8,846 
8,557 
1,770 
1,204 
3,209 
3,777 
2,462 
1,963 
4,250 
27,883 
4,177 
3,390 
2,940 
1,463 
2,048 
1.043 

$270,002,059 

248,071,302 

31,310,375 

48,474,192 

106,389,535 

100,720,288 

44,668,355 

47,952,915 

196.440,572 

835,768,845 

151,036,759 

148,966,639 

95,207,200 

45,891,071 

61,415,800 

29,676,250 

$  399,086,119 

218,345,400 

36,274.443 

44,026,400 

93,249,357 

94,058,562 

59.628.363 

30,396,552 

143.732,248 

1.160,426.166 

103.779.192 

193.631,529 

147,929,905 

44,624,111 

85.287.590 

37.401,000 

$  669,088,178 

466,416,702 

67.584,818 

92,500,592 

199,638,892 

194,778,850 

104,296,718 

78,349,467 

340,172,820 

1,996,195,011 

254,815,951 

342  598  168 

1885 

1886 

1887 

1888 

1889 

1890 

1891 

1892 

1893 

1894 

1895 

1896 

243,137.105 
90  515  182 

1897 

1898 

146  703  390 

1899 

67,077.250 

Totals 

521 

78,582 

$2,461,992,157 

$2,891,876,937 

$5,353,869,094 

Summary  by   Years    of    Number,  Mileage    and    Capital    of 
Railways  Sold  Under  Foreclosure  1884-1899: 


Year. 

Num- 
ber. 

Mileage. 

Stocks. 

Bonds. 

Total 
Capitalization. 

1884 

16 
26 
39 
28 
17 
27 
26 
22 
25 
21 
44 
53 
66 
42 
43 
28 

694 
2,898 
7.858 
5,129 
1,486 
2,802 
3,302 
3,281 
1,329 
1,123 
5,915 
10,446 
12,355 
5,831 
5,956 
3.408 

$  12,924.000 

122,280,688 

197,744,517 

158,722,274 

28,793,950 

62,464,713 

75,998,588 

73,483,621 

30,758,770 

30,974,450 

232,272,980 

316,723,841 

430,195,249 

239,351,195 

104,308.123 

117,111,734 

$  13,061,000 

145,676,077 

222,623,094 

152,926,782 

31,568,500 

83,456,187 

77,994,191 

83,190,500 

22,446,480 

17,791,500 

186,332,775 

452,095,991 

670,800,272 

201,173,947 

123,168,151 

147,724,479 

$  25,985,000 

1885 

267,956,765 

1886 

420  367,611 

1887 

311,649,056 

1888 

60  362  450 

1889 

145,920,900 

1890 

153,992,779 

1891 

156,674,121 

1892 

53,205,250 

1893 

48,765,950 

1894 

418,605,755 

1895 

768,819,832 

1896 

1,100,995,521 

1897 

440,525,142 

1898 

227,476,274 

1899 

264,836,213 

523 

73.813 

$2,234,108,693 

$2,632,029,926 

$4,866,138,619 

It  will  be  perceived  in  a  study  of  these  two  summaries  to- 
gether that  scarcely  were  the  railways  foreclosed  out  of  their 
trials,  following  the  panic  of  1884,  than  they  were  overtaken  by 
the  political  and  industrial  storm  of   1892-1893. 


165 


Among  the  principal  roads  included  in  the  above  summaries 
which  went  into  receivers'  hands  and  emerged  through  fore- 
closures were  the  following: 


Railroads. 


Year  of 

Pleceiver- 

ship. 


Miles 
Owned. 


Capital 
Stock. 


Bonds. 


Atch.  Top.  &  Santa  Fe 

Atlantic  &  Pacific 

Baltimore  &  Ohio 

Bait.  &  Ohio  Southwestern 

Chesapeake  &  Ohio 

Denver  &  Rio  Grande 

East  Tenn.,  Virginia  &  Ga.  R.  R 
East  Tenn.,  Virginia  &  Ga.  Ry.  . 

Missouri,  Kansas  &  Texas 

New  York  &  New  England 

New  York  &  New  England 

N.  Y.,  Chicago  &  St.  Louis 

N.  Y.,  L.  Erie  &  Western 

N.  Y.,  West  Shore  &  Buffalo 

N.  Y.,  Penn.  &  Ohio 

Norfolk  &  Western 

Northern  Pacific 

Oregon  Ry.  &  Navigation  Co.. . . 

Oregon  Short  Line 

Philadelphia  &  Reading 

Philadelphia  &  Reading 

St.  Louis  &  San  Francisco 

Union  Pacific 

Wabasli,  St.  Louis  &  Pacific 

Wisconsin  Central 

St.  Louis,  Ark.  &  Texas 

Texas  &  Pacific 


1893 
1894 
1896 
1898 
1887 
1884 
1885 
1892 
1888 
1884 
1893 
1885 
1893 
1884 
1895 
1895 
1893 
1893 
1893 
1884 
1893 
1893 
1893 
1884 
1893 
1889 
1885 


4,438 

691 

532 

921 

511 

1,317 

1,071 

1,265 

1,595 

326 

361 

513 

544 

473 

431 

1,328 

3,429 

643 

1,480 

327 

327 

992 

1,823 

2,483 

668 

1,222 

1,487 


$102,000,000 
79,760,000 
30,000,000 
30,000,000 
36,098,282 
38,000,000 
44,000,000 
57,000,000 
46,410.157 
20,000,000 
23,632,000 
50,000,000 
86,363,600 
40,000,000 
44,999,350 
59,500,000 
85,140,131 
24,000,000 
26,161,720 
34,668,425 
40,426,000 
50,000,000 
60,868,500 
52,626,800 
14,735,475 
23,083,000 
32,164,600 


$228,082,000 
38,913,629 
81,251,376 
51,844,690 
32,881,400 
28,123,000 
26,200,000 
39,000,000 
46,630,000 
12,833,000 
16,500,000 
20,046,000 
77,643,885 
70,000,000 
96,736,000 
55,074,200 

133,026,000 
22,703,000 
49,832,000 
97,782,327 

152,000,000 
42,686,300 
85,482,185 
76,434,834 
18,214,122 
32,808,000 
43,340,000 


31,198 


$2,131,638,040  1,676,077,948 


The  potent  story — if  not  the  whole  story — of  what  caused 
most  of  the  1893  receiverships  is  told  in  the  decrease  in  their 
gross  receipts  per  mile  between  1893  and  1894,  which  was  in 
turn  caused  by  the  decline  in  their  average  receipts  per  passen- 
ger and  ton  mile  as  exhibited  in  the  following  table  of  those 
roads  whose  statistics  are  available: 


166 


Comparative  Summary  of  Earnings  Per  Mile,  and  Per  Pas- 
senger AND  Ton  Mile  of  12  Railways  Involved  in  Re- 
ceiverships 1893-1894. 


1893. 

1894. 

Year  Ending  June  30. 

Year  Ending  Ju> 

'E  30. 

Road. 

Receipts 

Receipts 

Receipts 

Receipts 

Gross 

per  Pas. 

per  Ton 

Gross 

per  Pas. 

per  Ton 

Earnings 

Mile 

Mile 

Earnings 

Mile 

Mile 

per  Mile. 

(cents). 

(cents). 

per  Mile. 

(cents). 

(cents). 

A.  T.  &  S.  F 

$5,523 

2.264 

1.191 

$4,521 

2.096 

1.092 

Bait.  &  Ohio 

15,230 
4,560 

1.660 

.69 

12,996 
3,134 

1  590 

670 

E.  Tenn.,  Va.  &Ga.... 

2.400 

.85 

2.390 

.820 

N.Y.&  N.England... 

11,040 

1.990 

1.09 

9,800 

1.970 

1.060 

N.  Y.,L.  Erie  &  West.. 

17,635 

1.572 

.637 

14,819 

1.514 

.596 

Nor.  &  Western 

6,447 

2.897 

.514 

6,154 

2.850 

.466 

Northern  Pacific 

5,383 

2.630 

1.230 

3,729 

2.460 

1.120 

Ore.  Ry.&Nav.Co...  . 

4,560 

3.  056 

1.850 

3,650 

2.888 

1.640 

Ore.  Short  Line 

5,570 

2.603 

1.206 

4.120 

2.481 

1.081 

Phila.  &  Reading 

19,503 

1.804 

1.036 

17,360 

1.773 

1.011 

St.  Louis  &  S.  Fran 

5,052 

2.319 

1.198 

4,184 

2.116 

1.126 

11.176 

2.040 

1.060 

9,535 

1.950 

.980 

Moreover,  the  rates  for  both  passengers  and  freight  in  1893 
were  already  almost  at  the  bottom  of  the  gradual  decline  that 
brought  them  from  the  level  of  the  1884  period  of  receiverships 
to  that  of  the  1894  period.  Between  these  years  the  rates  of  the 
Atchison,  Topeka  and  Santa  Fe  fell  from  2.648  cents  per  pas- 
senger mile  and  1.882  cents  per  ton  mile  to  those  given  in  the 
above  table ;  of  the  New  York  and  New  England  from  2.02  and 
1.41  cents  respectively;  of  the  New  York,  Lake  Erie  and  West- 
ern (the  Erie)  from  2.188  and  .685  cents;  of  the  Norfolk  and 
Western  from  2.71  and  1.18  cents;  of  the  Northern  Pacific  from 
3.44  and  1.96  cents;  of  the  Oregon  Railway  and  Navigation 
Company  from  3.99  and  3.45 ;  of  the  Philadelphia  and  Reading 
from  1.84  and  1.38  cents;  of  the  Union  Pacific  from  2.903  and 
1.910  cents;  and  of  the  St.  Louis  and  San  Francisco  from  2.87 
and  1.57  cents. 

For  the  entire  country  the  rates  per  mile  between  1884  ^i^d 
1894  declined  from  2.36  to  1.986  cents  per  passenger  and  from 
1. 13  to  0.86  cents  per  ton.  This  decrease  of  37/iooths  of  a  cent 
per  passenger  mile  and  27/iooths  per  ton  mile  caused  a  loss  of 
no  less  than  $299,775,826 — on  the  traffic  of  1894 — a  sum  suffi- 


167 

cient  to  have  insured  the  solvency  of  every  road  in  the  United 
States  during  that  disastrous  year. 

It  was  the  steady  drain  of  declining  rates,  and  not  over-cap- 
italization that  was  the  "potent  cause"  of  the  railway  receiver- 
ships of  1893-1897. 

Before  the  railways  recovered  from  the  prostration  and  ex- 
haustion of  this  trying  period,  millions  of  fresh  capital  had  to 
be  raised  to  make  good  the  deterioration  inseparable  from  de- 
pleted treasuries.  This  was  independent  of  and  in  addition  to 
the  millions  that  might  have  been  paid  in  dividends  that  were 
diverted  from  the  pockets  of  stockholders  to  maintain  the  prop- 
erty and  keep  it  in  condition  to  perform  its  public  service,  when 
politics  and  financial  soundness  permitted  a  resumption  of  na- 
tional industry. 

Let  me  illustrate  this  process  by  a  few  well-known  examples : 

Three  Examples  of  Receiverships. 
The  Atchison,  Topeka  &  Santa  Fe, 

As  shown  in  the  preceding  table  and  paragraphs,  the  Atchi- 
son, Topeka  and  Santa  Fe's  failure  to  meet  the  interest  on  its 
bonds  was  due  to  the  drop  in  its  reyenues  following  the  reduc- 
tion of  its  passenger  and  ton  mile  rates  from  2.648  and  1.882 
cents  respectively  in  1884  to  2,264  ^^^  1.191  cents  in  1893. 

When  it  went  into  the  hands  of  the  Court  its  funded  debt 
was  $228,082,000  and  its  capital  stock  $102,000,000.  When  it 
emerged  after  foreclosure  its  funded  debt  had  been  scaled  down 
to  $162,278,050  and  its  capital  6cock  increased  to  $213,468,000. 
The  increase  in  stock  was  accounted  for  by  the  issue  of  $111,- 
486,000  preferred  stock  to  the  holders  of  old  2d  mortgage  bonds, 
amounting  to  over  $90,000,000,  on  payment  of  a  4  per  cent,  as- 
sessment, and  as  a  bonus  to  holders  of  the  original  stock  on 
whom  an  assessment  of  $10  a  share  was  levied.  As  shares  in 
the  old  company  for  which  par  had  been  originally  paid  were 
worth  only  $13  at  the  date  of  reorganization,  it  required  faith 
to  pay  the  $10  a  share  assessment  necessary  to  hold  on.  It 
was  1899  before  a  2J  per  cent,  dividend  was  declared  on  the 
preferred  stock,  and  1901  before  a  i J  per  cent,  dividend  was  paid 
on  common. 


168 

For  eleven  years  from  1888  to  1898  all  capital  stock  in  the 
Atchison,  which  prior  to  the  former  date  had  been  a  6  per  cent, 
stock,  lay  fallow,  paying  no  dividends  whatever.  And  as  about 
$13,000,000  in  cash  was  paid  into  the  treasury  for  the  privilege 
of  retaining  it,  it  is  clear  that  from  $70,000,000  to  $80,000,000 
fairly  due  the  owners  of  the  stock  and  second  mortgage  bond 
holders  was  either  paid  in  by  or  retained  from  them  for  the 
benefit  of  the  property.  Against  this  there  was  an  increase  in 
nominal  capitalization  of  less  than  $46,000,000,  the  ownership 
of  the  property  had  been  consolidated  and  the  road  renovated 
and  vastly  improved  at  a  cost  of  over  $40,000,000,  not  repre- 
sented in  capital.  It  is  evident  that  the  water  in  the  Atchison 
reorganization  of  1896  was  blood  drawn  from  the  body  of  its 
stockholders  for  the  benefit  of  the  public. 

The  Baltimore  &  Ohio. 
The  Baltimore  and  Ohio  went  into  receivers'  hands  in  1896, 
owning  532  miles  of  road  with  $81,251,000  funded  debt,  and  $30,- 
000,000  capital  stock.  It  came  out  through  a  reorganization, 
without  a  foreclosure,  in  1899  owning  1017  miles  of  road,  with 
$134,233,350  funded  debt  and  $74,227,767  capital  stock.  It  also 
owned  stocks  and  bonds  with  a  ledger  value  of  over  $10,000,000 
and  operated  2047  miles  of  road,  which  had  been  practically  re- 
newed and  re-equipped  throughout  during  the  three  years  it 
was  under  the  receivership.  It  is  not  possible  to  approximate 
how  much  cash  went  into  the  property  during  this  period,  but 
there  was  a  hiatus  in  dividends  between  1896  and  1900  that 
represented  more  than  $7,000,000  loss  to  shareholders,  which  was 
used  to  fertilize  the  property.  Moreover,  when  dividends  were 
resumed  in  1900  the  rate  was  only  4  per  cent,  where  previous 
to  their  discontinuance  in  1896  it  had  been  6.  It  was  1907  be- 
fore the  dividend  rate  on  common  was  restored  to  6  per  cent., 
that  on  preferred  remaining  fixed  at  4.  Where  previous  to 
1896  the  Baltimore  and  Ohio  was  paying  between  5  and  6 
per  cent,  interest,  since  the  reorganization  the  rate  has  been 
between  3J  and  4.  Since  1900  over  $100,000,000  stock  has  been 
sold  at  par  and  the  proceeds  invested  in  acquiring  auxiliary 
lines,  improvements  and  equipment  necessary  to  meet  the  de- 
mands of  a  traffic  that  has  more  than  trebled  in  the  meantime. 


169 

Manifestly  the  effect  of  the  receivership  of  1896  and  the  re- 
organization of  1899  was  to  place  the  Baltimore  and  Ohio  on  a 
bedrock  financial  basis. 

The  Erie. 

As  a  final  illustration  of  the  economic  effect  of  receiverships 
upon  the  capitalization  of  railways,  let  us  consider  the  Erie, 
which  from  its  earliest  history  has  been  the  sport  of  adverse 
circumstances.  Chartered  as  the  New  York  and  Erie  Railroad 
in  1832,  its  construction  and  success  were  embarrassed  by  a 
provision  that  it  was  to  be  built  entirely  within  the  State  of 
New  York.  After  many  vicissitudes  it  was  finally  completed 
to  Buffalo  "and  extended  through  New  Jersey  to  Jersey  City. 
Its  first  experience  with  receiverships  was  in  1859,  from  which 
it  emerged  as  the  Erie  Railway.  We  have  already  reviewed 
the  causes  of  its  insolvency  in  1875.  It  went  into  that  receiver- 
ship with  a  total  capitalization  of  $140,808,724  and  was  reor- 
ganized in  1878  with  a  capitalization  of  $151,564,595 — the  in- 
crease being  wholly  in  funded  debt  on  which  the  interest  charge 
was  reduced  from  7-64/100  to  less  than  6J  per  cent.  The  cap- 
ital stock  remained  the  same,  holders  being  assessed  $2  or  $3 
and  $4  or  $6  per  share  on  preferred  and  common  stock,  respec- 
tively— the  higher  rate  receiving  a  premium  in  income  bonds. 
The  sum  thus  raised,  together  with  funds  from  the  sale  of 
bonds,  amounting  to  $6,000,000,  were  put  into  much  needed  im- 
provements. 

During  the  fifteen  years  between  the  Erie's  reorganization 
in  1878,  as  the  New  York,  Lake  Erie  and  Western,  and  the 
receivership  of  1893  no  dividends  were  paid  on  the  $77,837,000 
of  its  common  stock,  and  only  6  per  cent,  in  1882,  '83  and  '84, 
and  3  per  cent,  in  1892  on  its  $8,536,600  preferred.  Between 
the  receivership  of  1875  and  that  of  1893  the  receipts  from  pas- 
sengers per  mile  had  declined  from  2.220  to  1.572  cents  and 
from  freight  from  1.208  to  0.637.  ^^  short,  had  the  rates  of 
1875  been  charged  in  1893  the  company's  receipts  would  have 
been  $52,891,000  instead  of  $29,993,160  on  the  same  volume  of 
traffic,  and  there  would  have  been  no  necessity  for  a  receiver- 
ship. 


170 

Between  1878  and  1893  the  funded  debt  had  been  increased 
from  $66,818,203  to  $77,643,885  with  no  addition  to  capital  stock. 
The  mileage  owned,  leased  and  operated  had  been  extended 
from  957  to  1 701  miles;  the  number  of  locomotives  had  in- 
creased from  466  to  626,  passenger  cars  from  304  to  590  and 
freight  cars  from  11,298  to  12,830,  irrespective  of  their  greater 
average  capacity. 

When  the  New  York,  Lake  Erie  and  Western  went  into  the 
receiver's  hands  in  1893,  its  capital  obligations  were,  common 
stock,  $77,827,000;  preferred  stock,  $8,536,600,  and  funded  debt, 
$77,643,885,  upon  which  last  the  annual  charges  were  $4,680,781. 

When  it  emerged  as  the  Erie  Railroad  in  1895,  its  capital 
obligations  were:  Common  stock,  $100,000,000;  Firsl  Preferred, 
$30,000,000,  and  funded  debt,  $102,905,577.  Including  bonds  on 
properties  controlled  through  ownership  of  capital  stock  the 
funded  debt  outstanding  April  i,  1896,  was  $126,009,100,  upon 
which  the  annual  interest  charge  was  $5,005,899,  or  only  $325,- 
118  more  than  on  the  smaller  debt  of  1893.  An  increase  of  258 
miles  of  line  owned,  and  the  acquisition  of  all  the  stock  and 
bonds  of  the  New  York,  Pennsylvania  and  Ohio  (from  Sala- 
manca, N.  Y.,  to  Cleveland  and  Dayton,  Ohio)  accounts  for 
the  major  part  of  this  increase  in  gross  capitalization — the  se- 
curities owned  and  pledged  under  its  first  consolidation  deeds 
aggregating  no  less  than  $64,705,000. 

In  the  process  of  reorganization  the  shareholders  were  called 
on  to  pay  an  assessment  amounting  to  $10,844,370.  The  hold- 
ers of  common  stock  had  received  no  dividends  between  the 
assessments  of  1878  and  1895  and  the  only  payments  on  pre- 
ferred were  those  noted  above. 

The  following  statement  shows  the  mileage  of  the  Erie  owned, 
leased  and  operated  before  and  after  the  receivership  of  1893 : 


171 


1893. 

1896. 

Title. 

Length  of 

Line 

(Miles). 

Total 
Track 
(Miles). 

Length  of 

Line 

(Miles). 

Total 
Track 
(Miles). 

Owned 

551 
539     .... 
12    .... 
551 
598 
270 

1.228 

1.083 
977 
393 

1,608 

792    .... 

816    .... 

277 

80 

200 

2.709 

In  fee 

848 

Operated 

172 

Controlled 

209 

Erie  System 

1,970 

3.681 

2,165 

3,938 

Between  1873  and  1893  the  Erie  system  had  been  converted 
from  a  6-foot  gauge  road  laid  with  64  to  70  lb.  iron  rails  to  a 
standard  4-ft.  8J  in.,  gauge  road,  laid  with  56  to  60  lb.  steel 
rails,  and  before  it  emerged  from  the  receivership  the  weight 
of  its  steel  rails  had  been  increased  to  68  to  80  lbs.  When  the 
change  from  iron  to  steel  was  begun  steel  rails  cost  $120  a  ton. 
The  cost  of  improvements  planned  in  1873  (most  of  which  were 
executed  out  of  assessments  on  stock,  sales  of  bonds  and  from 
undivided  profits)  were  estimated  at  $39,720,000. 

The  unenviable  notoriety  attending  the  financiering  of  the 
Erie  has  overshadowed  the  streams  of  money  from  various 
sources  that,  since  the  time  when  its  first  stockholders  sur- 
rendered half  their  holdings  to  induce  new  subscriptions,  down 
to  the  present  day  have  been  poured  into  its  maintenance  and 
improvement. 

The  work  of  making  the  Erie  an  easy  grade  line  from  Chi- 
cago to  tidewater  has  been  progressing  steadily  for  years.  Dur- 
ing the  past  six  years  the  tractive  power  of  its  engines  has  been 
increased  nearly  60% ;  and  in  ten  years  the  capacity  of  its 
freight  cars  has  been  increased  84%.  The  combination  of  these 
elements  has  enabled  the  Erie  to  increase  its  average  trainload 
over  80%,  but  it  has   yet  to  pay  a  dividend  on  its  common  stock. 


Common  Effect  of  Receiverships. 

The  experiences  of  the  Atchison,  Topeka  and  Santa  Fe;  the 

Baltimore  and  Ohio,  and  the  Erie,  were  common  to  nearly  every 

railway  that  went  to  the  wall  in  the  panic  of  1893.    They  found 

themselves  carrying  traffic  at  such  reduced  rates  that  when  the 


172 

volume  of  business  decreased  from  14  to  20  per  cent,  they  were 
unable  to  meet  their  fixed  obligations.  In  the  reorganizations 
of  57  roads  between  1884  and  1898,  assessments  amounting  to 
no  less  than  $87,000,000  on  stock  and  $9,000,000  on  bonds  were 
called  for  from  their  holders. 

In  1895  only  29.94  per  cent,  of  railway  stock  paid  any  divi- 
dends whatever,  the  total  paid  in  dividends  having  shrunk  from 
$100,929,885  in  1893  to  $85,287,543  in  1895. 

It  was  1899  before  dividends  amounted  to  over  $100,000,000 
and  1901  before  half  of  the  railway  stocks  paid  any  dividends. 

The  intercorporate  ownership  of  stocks  and  bonds  dropped 
from  $1,563,022,233  in  1893  to  $1,447,181,534  in  1895,  showing  a 
decrease  of  over  $116,000,000  due  to  the  disposal  of  such  as- 
sets to  the  public  at  panic  prices. 

In  1899  when  the  railways  may  be  said  to  have  emerged  from 
the  slough  of  1893  their  net  capitalization  was  only  $51,215 
per  mile  against  $52,348  in  1892  before  the  panic.  Such  in- 
crease as  there  has  been  in  capitalization  since  has  been  due  to 
their  strenuous  efforts  to  provide  tracks  and  equipment  to 
handle  traffic  which  has  well  nigh  overwhelmed  them — coming 
so  soon  after  the  period  of  enforced  retrenchment. 

There  has  been  no  watering  of  stock  since  1899 — the  greater 
part  of  the  recent  issues  for  improvements,  extensions  and 
equipment,  being  sold  at  a  premium. 


173 


XIII 
SMALL  RETURNS  ON  RAILWAY  INVESTMENTS 

While  fortunes  have  been  made  in  the  construction  and  finan- 
ciering of  American  railways,  their  history  proves  that  the  re- 
turns to  investors  from  their  operation  have  been  comparatively 
less  than  in  any  other  great  industry.  In  1840  Mr.  T.  R.  Tan- 
ner in  his  "Canals  and  Railroads  of  the  United  States,"  with 
admirable  prescience,  wrote: 

"As  facilities  of  intercourse,  the  moral  effects  of  the  general 
introduction  of  railroads  and  canals  can  never  be  duly  appre- 
ciated. Considered  as  means  of  revenue,  merely,  it  is  doubt- 
ful whether  they  can  be  made  to  yield  an  interest  equal  to  that 
derived  from  most  other  investments.  "*"  *  *  The  railroads 
throughout  the  country  will,  no  doubt,  prove  hereafter  to  be 
more  productive  than  the  canals ;  though,  according  to  a  state- 
ment drawn  up  by  Mr.  De  Geustner,  the  interest  on  the  capital 
invested  in  railroads  in  the  United  States  i^i  1839  does  not  ex- 
ceed five  and  a  half  per  cent." 

This  was  written  when  the  average  fare  per  passenger  was 
five  cents  per  mile  and  the  average  freight  rate  was  nine  cents 
per  ton  per  mile,  and  money  in  secure  investments  commanded 
from  8  to  10  per  cent,  interest. 

Now  let  us  see  what  the  return  has  been  from  the  time  since 
we  have  had  comprehensive  statistics.  Before  the  period  of 
official  data.  Poor's  Manual  affords  the  following  summary  of 
interest  and  dividends  paid  on  railway  capital : 


174 


Summary  of  Rates  of  Interest  and  Dividends  Paid   on 
Railway  Capital — 1871-1888. 


Interest. 

Per  Cent  on 

Bonds  and  Debt. 

Dividends. 

Per  Cent  on 

Stock. 

1871 

No  data. 

4.32 
4.39 
4.16 
4.53 
4.00 
4.16 
4.39 
4.58 
4.54 
4.65 
4.53 
4.54 
4.20 

4  19 

1872 

8.91 

1873 

3.45 

1874 

3.37 

1875     

3  38 

1876    

3  03 

1877 

2  53 

1878 

2  34 

1879 

2.57 

1880 

2.84 

1881 

2.94 

1882 

2.92 

1883 

2.77 

1884 

2.48 

1885 

2.00 

1886 

2.04 

1887.      

2  18 

1888 

1.77 

These  figures  include  duplications,  both  in  the  capitalization 
and  the  returns  thereon.  Since  1888  the  official  statistician  has 
presented  summaries  giving  the  "average  rate  paid  on  dividend 
paying  stock,"  which,  however,  is  valueless  as  an  indication  of 
the  return  on  capital  invested.  It  is  included  in  the  following 
continuation  of  the  preceding  statement  for  purposes  of  com- 
parison with  the  rates  based  on  the  official  reports  and  as  given 
in  Poor's  Manual: 


175 


Summary  of  Rates  of  Interest  and   Dividends  Paid  on 
Railway  Capital — 1888-1905. 


Interest  Per  Cent 
on  Funded  Debt. 

Dividends  Per  Cent 
on  Stock. 

Average  Rate 
Paid  on 

Year. 

Poor's 
Manual. 

Official. 

Poor's 
Manual. 

Official. 

Dividend-Paying 
Stock. 

1889 

4.40 
4.27 
4.25 
4.25 
4.31 
4.19 
4.24 
4.45 
4.24 
4.21 
4.26 
4.27 
4.24 
4.10 
4.17 
4.01 
3.79 
3.99 

4.99 
4.86 
4.54 
4.75 
4.79 
4.72 
4.67 
4.67 
4.70 
4.53 
4.55 
4.48 
4.46 
4.49 
4.41 
4.33 
4.28 

1.79 
1.82 
1.87 
1.93 
1.88 
1.66 
1.58 
1.52 
1.51 
1.71 
1.92 
2.44 
2.65 
2.97 
3.03 
3.31 
3.27 
3.63 

1.93 
1.99 
2.05 
2.15 
2.16 
1.97 
1.72 
1.67 
1.62 
1.78 
2.01 
2.38 
2.70 
3.08 
3.19 
3.50 
3.63 

5.04 

1890 

5.45 

1891 

5.07 

1892 

5.35 

1893 

5.58 

1894 

5.40 

1895 

5.74 

1896 

5.62 

1897 

5.43 

1898 

5.29 

1899 

4.96 

1900 

5.23 

1901 

5.26 

1902 

5.55 

1903 

5.70 

1904 

6.09 

1905 

5.78 

1906 

The  discrepancies  in  the  average  rates  of  interest  and  divi- 
dends between  the  official  computation  and  Poor's  Manual  con- 
firm rather  than  lessen  the  value  of  these  figures  as  illustrating 
the  fluctuation  in  the  returns  on  railway  capital.  One  set  is 
based  on  incomplete  returns  for  the  calendar  years  and  the 
other  on  well  nigh  complete  returns  for  the  fiscal  years.  Both 
columns  emphasize  the  failure  of  the  official  "average  rate 
paid  on  dividend  paying  stock"  to  reflect  the  actual  return  on 
railway  capital.  This  is  more  nearly  approached  in  the  fol- 
lowing table  showing  the  average  rate  of  net  dividends  paid 
on  the  net  capital  stock,  the  data  for  which  has  only  been  avail- 
able since  1898: 


176 


Net  Dividends  on  Net  Capital  Stock  Since   i 


Capital  Stock 

Outstanding. 

Not  Duplicated. 

Net  Dividends. 

Average  Rate  of  Net 

Dividends  to  Net 

Capital  Stock. 

1898 

$4,236,404,163 
4,307,513,427 
4,375,360,621 
4,069,898,993 
4,314,055,951 
4,357,235,824 
4,397,040,970 
4,484,504,943 

$  83,995,384 
94,273,796 
118,624,409 
131,626,672 
157,215,380 
166,176,586 
1-83,754,236 
188,175,151 

1.98 

1899 

2  19 

1900 

2.71 

1901 

3.23 

1902 , , 

3.64 

1903 

3.81 

1904 

4.20 

1905 

4.19 

This  table  proves  that  the  ratio  of  dividends  to  stock  as  dis- 
closed by  the  preceding  computations,  based  on  gross  capital 
stock  and  gross  dividends,  is  very  much  nearer  arriving  at  the 
true  rate  of  returns  on  railway  capitalization  than  the  "average 
rate  on  dividend  paying  stock,"  as  annually  computed  by  the 
Official  Statistician.  It  also  reflects  the  fluctuations  in  such 
returns,  which  the  Statistician's  formula  does  not,  but  some- 
times actually  reverses — vide  the  returns  for  1895  and  1899. 

From  the  above  tables  it  will  be  seen  that  the  average  re- 
turn on  capital  invested  in  American  railways  in  1905,  the  most 
prosperous  year  for  which  we  have  complete  official  figures, 
was  4.28  per  cent,  on  funded  debt,  and  4.19  on  capital  stock,  or 
4.25  per  cent,  on  all  railway  capital. 

In  1905  the  average  interest  or  dividend  paid  on  all  de- 
scription of  capital  of  the  railways  of  the  United  Kingdom 
was  4.05,  and  this  was  on  a  net  capitalization  per  mile  over  five 
times  greater  than  that  of  American  railways. 

If  American  railways  were  over-capitalized  in  proportion  as 
British  railways  are,  it  would  take  a  sum  equal  to  their  entire 
gross  receipts  in  1905  to  pay  4.05  per  cent,  on  the  colossal  ac- 
cumulation of  expenditures  on  capital  account. 

The  extreme  difference  between  American  and  foreign  sys- 
tems of  capitalization  is  summed  up  in  two  lines: 


177 


- 

Capital 
per  Mile. 

Rate  on 
Capital. 

Capital  Charge 
per  Mile. 

British  railways,  1905 

$273,438 
53,328 

4.05 
4.25 

$11,074 

American  railways,  1905 

2,266 

The  total  earnings  from  operation  of  American  roads  in  1906 
were  $10,460  per  mile,  or  less  by  $614  than  the  capital  charge 
per  mile  on  British  railways. 

No  higher  tribute  could  be  paid  to  the  economic  soundness  of 
the  American  railway  policy  of  providing  for  betterments  and 
a  large  proportion  of  improvements  out  of  current  income.  Brit- 
ish railways  are  staggering  to  a  bitter  reckoning  under  the  re- 
verse policy  of  charging  all  betterments  and  impfovements  to 
capital  account. 


A  Tail-Piece  that  Tells  its  own  Tale 
(On  the  Great  Northern) 


Built  1907 
Weight.  195,000  lbs.     Cost,  $15,750. 


Built  1892 
Weight.  40,000  lbs.     Cost.  S5,000. 


INDEX. 


Page. 
Adams,  Henry,  on  conditions  in  1800  30 
Adams,    Henry   C,    (official   statis- 
tician), on  balance  sheet 60 

Adams,  Henry  C,  on  possibility  of 

valuation 3 

Adams,  Henry  C,  on  what  consti- 
tutes capital 47 

Alleghany  Portage  R.  R.,  cost  of 66 

Atchison,  Topeka  &  Santa   Fe,  re- 
ceivership     167 

Australian  railways,  cost  of 111 

Baldwin,  crippled  by  panic  of  1837....  67 
Baldwin,  locomotives,  fast  passenger 

1848  (Illustration) 68 

Baldwin,  locomotives  in  1861  (Illus- 
tration).  80 

Baldwin,  locomotives  in  1906 93 

Baldwin,  locomotives,  output  1856 — 

1860  _-- 79 

Balance  sheet,  cost  as  shown  by 88 

Balance  sheet,  what  it  shows 60 

Baltimore  &  Ohio,  breaking  ground 

for   35 

Baltimore    &    Ohio,    completed    to 

Wheeling,  1850 43 

Baltimore  &  Ohio,  receivership,  1896  168 

Belgian  railways,  cost  of 107 

Betterments  out  of  profits  on  Penn- 

slyvania 96 

Betterments  and  improvements  out 

of  income 24 

Boston  and  Albany  (Western)  con- 
dition of,  in  1851 71 

British  and  American  railways  com- 
pared in  1844 103 

British  railways,  characteristics  of-.  102 

British  railways,  cost  of 101 

British   railways,    cost   of   labor  in 

construction 105 

British  railways,  cost  per  mile  1850 — 

1905  _. 102 

British  railways,  early 103 

British  railways,  land  damages  for.  _  103 
Callaway,   Samuel   R.,   estimate   of 
value  of  New  York  Central  ter- 
minal   - --  115 

Camden  and  Amboy  R.  R.,  growth 

of  traffic  on.  _ 45 

Camden  and  Amboy  R.  R.,  cost  of- _  62 
Canals.  Cooley  on  inability  to  com- 
pete with  railways 33 

Canals,  early,  in  the  United  States.  _  32 

Canals,  Erie 32 

Canals,  first  preferred  to  railways 19 

Capital,  Adams,  on  what  it  includes.     4,  8,  47 

Capital,  little  relation  to  rates 6 

Capital,  account  in  1906 52 

Capital,  and  cost  by  groups 98 

Capital,  comparative,  in  1867 48,  100 

Capital,  gross,  per  mile 4,  47,  49 

Capital,  gross,  and  per  mile  1871  to 

1905 49 

Capital,  how  duplicated 51 

Capital,  net 47 

Capital,  net  per  mile  of  line,  1890  to 

1906 51,  53 

Capital,  net  per  mile  of  track,  1889  to 

1906 54 

Capital,  originally  included  current 

liabilities _ 47 

Capital,  sources  of 74,  77 

Carroll    of   Carrollton    at    breaking 

ground  for  B.  &  O 35 

Cars  originally  the  property  of  indi- 
viduals   65 

Census  of  United  States,  1830 38 

Central  Pacific,  initial  cost  of. 81 

Charleston  and  Hamburg  R.  R.,  cost 

of 63 

Chicago    and    Alton,    capitalization 

and  rates 26 


Page. 
Chicago  and  Northwestern,  original 

project  delayed  by  panic  of  1837  151 
Chicago  and  Northwestern,  first  loco- 
motive arrives  by  boat 43 

Chicago  and  Rock  Island  reaches  the 

Mississippi 43 

Chicago,      Burlin^on      &      Quincy 

opened  to  Quincy 43 

Chicago,    Milwaukee    &    St.    Paul, 

Wisconsin  Commission  on  cost_  97 
Chicago,  Milwaukee  &  St.  Paul,  se6 
Racine,  Janesville   and    Missis- 
sippi   77 

Cheap  construction,  cost  of  items  in_  119 

Cincinnati,    Union    &    Ft.    Wayne, 

sources  of  capital  for 76 

Cleveland  &  Pittsburgh,  original  cost 

of _ 

Cleveland,  Columbus  &  Cincinnati, 

original  cost  of 73 

Columbia  and  Philadelphia,  cost  of.  _  64 

Columbus,  Piqua  &  Indiana,  sources 

of  capital  for  _. 74 

Commercial,  valuation    11,138 

Comparative  capitalization 100 

Comparison,    value    of   railways   as 

shown  by 9 

Conditions  in  ante-railway  times 29 

Construction,  progressive  steps  in 43 

Construction,  cost  of,  first 58 

Construction,  cost  of  and  net  capita- 
lization, 1890—1906 59 

Construction,  early,    buried    in    ar- 
chives    62 

Construction,  early,  previous  to  1840  6b 

Construction,  early,  in  decade  1840 — 

1850 67 

Construction,  early,  in  decade  1850 — 

1860 69 

Construction,  early,  in  1860 79 

Construction,  early,  in  1870 80 

Construction,  early,  in  1880 83 

Construction,  early,  in  1890. 85 

Construction  and  equipment,  cost'  of 

in  1906 92,  116 

Construction,  as  shown  in   balance 

sheet,  cost  of 88 

Construction,  composite  examples  of 

typical  cost 117,118 

Construction,  cost,  examples  of 116,  120 

Cooley,  Thomas  M.,  on  confusion  as 

to  sources  of  fortunes 27 

Cooley,  Thomas  M.,  on  inability  of 

canals  to  compete  with  railways  33 

Cooley,   Thomas   M.,    on   object   of 

regulation 5 

Cooper,  Peter,  designed  first  Ameri- 
can locomotive 35 

Cost  of  transportation  in  1800 31 

Current  liabilities  originally  included 

in  capital -_  47 

Dana,  Charles  A.,  on  Southern   rail- 
ways in  1865 79 

De  Toqueville  on  America  in  1 83  5 31 

De  Witt  Clinton,  locomotive  of  1831 

(Illustration) 39 

Difficulties  in  valuation,  Minnesota 

Commission  on 7 

Discount  on  sale  of  securities  legiti- 
mate  ---  19 

Dividends,  average  on  net   capital 

stock   176 

Duplication  of  capital 51 

Early  construction,  economy  of 78 

Early  construction,  not  designed  for 

heavy  traffic 44 

Early  New  England  Railways,  cost 

of 20.  63 

Early  rates  on  Pennslyvania 66 

Earnings  no  test  of  cost 8 


INDEX— CONTINUED. 


Page. 
Elements     in     railway     valuation, 

Supreme  Court  on 5,7 

Employes,  pay  of  Japanese  railway _  111 
Equipment,    cost   of,   as   shown   in 

balance  sheet 91 

Equipment,  cost  9f  reproducing. 123 

Equipment,    British  and   American 

compared _  104 

Erie  Canal,  cost  of  construction 33 

Erie  Canal,  opened  1826 32 

Erie  Railroad,  opened  to  Lake  Erie_  43 

Erie  Railroad,  receivership  of  1874.  _  155 

Erie  Railroad,  receivership  of  1894.  _  169 

Estimates  of  cost  of  Western  roads.  _  72 
European   and   American   railways, 

cost  compared 100 

European  railways,  cost  of 100 

Expensive  construction,  example  of 

cost  of 119 

Farms,  increased  value  of,  in  fifty 

years 25 

Foreclosures,  1884  to  1899. _ 165 

Foreign  railways,  cost  of 100,  101 

French  railways,  cost  of 106 

Freight  cars,  cost  of  modern 126 

Freight,  cost  of  moving  by  team  haul  38 
Freight,  rates  allowed  by  first  Penn- 
sylvania charter 37 

Freight,  receipts  per  ton  mile 4 

Freight  yard  in  Chicago,  a  priceless 

(Illustration) 128 

Freight  allowed  in  charter  of  Cleve- 
land and  Pittsburgh  . 72 

Georgia,  history  of  a  state  road  in..  124 

German  railways,  cost  of 104 

German  railways,   cost  of  labor  in 

building 105 

Grade  crossings,  cost  of  eliminating 

in  Massachusetts 56 

Grade  crossings,  cost  of  eliminating 

in  New  York 57 

Gauge  change  of  1880-1887. 85 

Half  the  Union  without  railways  in 

1860 80 

Harlem  Railroad,  cost  of 64 

Highways,  cost  of  country 37 

History,  value  as  seen  in 9 

History  of  American  railways 29 

Horse  path  a  feature  of  early  rail- 
ways  65 

Horse  power  used  on  early  railways.  35 
Illinois    Central,    Chicago  to   Cairo, 

completed  in  1856 43 

Improvements  charged  to  operating 

expenses.. 25 

Improvements,  cost  of,  out  of  income       23,  97 
Improvements,  legitimate    basis    of 

capitalization 97 

Increment,  natural  and  unearned  .  .  136 
Increase  of  railways  in  seven  West- 
ern states  1870-1890. 86 

Indian  (East)  cost  of _.  Ill 

Intangible  assets   in  Texas 115 

Intangible  value  of  railways 11 

Intercorporate  holdings  of  capital..  51 
Interest,  rate  of  when  railways  first 

built..... 19 

Investment,  irrevocable. 10 

Japanese  railways,  pay  of  employes 

of... Ill 

Japanese  railways,  cost  of. 107 

Japanese  railways,  method  of  ascer- 
taining value  of . _ 110 

Japanese    railways,    cost   of   rolling 

stock  of 108 

Japanese    railways,    price   paid    by 

government  for 110 

Knapp,  Chairman  M.  A.,  on  relation 

between  capital  and  rates 6 

Labor,  cost  of  in  construction 105 

Labor,  cost  of  in  Germany 105 

Labor,  cost  of  in  Great  Britain 105 

Labor,  cost  of  in  Japan 105 

Labor,  cost  of  in  United  States 111 

La  Follette,   Senator,   resolution  in 

re-valuation ._  3 

La  Follette,  Senator,  estimate 13 


Page. 
La  Follette,   Senator,  seven  billion 

error 14 

La  Follette,  Senator,  error  exposed.  15 

Land,  damages  in  Great  Britain 103 

Land  grants 75 

Land  represented  in  capital 76 

Land  values  in  large  cities 132 

Land  values  per  capita 132 

Land  values  per  acre  by  states 130 

Locomotives,  Baldwin,  output  1853- 

1860 79 

Locomotives,  Baldwin,  weight  1853  79 

Locomotives,  Baldwin,  in  1861 60 

Locomotives,  contrast  in  1876-1906.  84 
Locomotives,  cost  of  first  Stephenson 

imported.. _ 37 

Locomotives,  cost  of  modern 124 

Locomotives,   demonstrated  to  run 

on  curves 37 

Locomotives  first  used  in  the  United 

States 34 

Locomotives,  first  arrive  in  Chicago 

by  boat. 43 

Locomotives,  gold  medal  winner  in 

1867  (Illustration) 82 

Locomotives,  freight  in  1844  (Illus- 
tration)   67 

Locomotives,Mallet  compound  (Illus- 
tration)   93 

Locomotives  race  with  a  horse. 35 

Locomotives,  weight  when  first  intro- 
duced  34 

Locomotives,  weight  now 93 

Locomotives,  weight  in  1855-60 79 

Mail  train,  fast,   80  miles  an  hour 

(Illustration) 95 

Market  value  of  railways 141 

Massachusetts  railways,  statistics  of 

in  1851 _ 70-71 

Mauch  Chunk  Railroad,  cost  of 62 

Mileage  of  railways  in   the  United 

States  by  states  1841-1906 46 

Michigan  Central  reaches  Chicago 43 

Michigan's     experience    with    state 

ownership 153 

Minnesota  Commission  on  difficulties 

of  valuation 7 

Mohawk  and  Hudson,  initial  cost  of  64 
Mulhall,  estimate  of  cost  of  French 

railways 106 

Natural  increment,  railways  entitled 

to 136 

New  England  railway,  statistics  of 

in  1851 71 

New  York  railway,  statistics  of  in 

1851 70 

New  York  and  Albany  R.  R.,  original 

estimates  for 64 

New  York  and  Hudson  River  R.  R., 

initial  cost  of 64 

New  York  Central,  terminal  rights..  115 

New  Zealand  railways,  cost  of 112 

Northern  Pacific  begun  in  1870 84 

Northern   Pacific,   cost  of  construc- 
tion  122 

Northern  Pacific,  value  of  right  of 

way 136 

Northern     Pacific,     receivership    of 

1874 155 

"Old   Ironsides"  locomotive    (Illus- 
tration)   40 

Panic  of  1837 152 

Panic  of  1857 163 

Panic  and  receiverships  of  1873 164 

Panic  and  receiverships  of  1885 158 

Panic  and  receiverships  of  1893 160 

Passenger  car.  first  on  Pennsylvania 

(Illustration) 41 

Passenger  cars,  early  cost .65,72,73 

Passenger  cars,  cost  of  modem '.  124 

Passenger  cars,  1880  and  1905  (Illus- 
tration)   90 

Passenger  cars,  steel  (Illustration)..  91 
Passenger  locomotive  in  1848  (Illus- 
tration)  68 

Passenger  rates  allowed  by  Cleve- 
land and  Pittsburgh  charter  ..  72 


INDEX— CONTINUED. 


Page. 

Passenger  receipts  per  mile 4 

Passenger  receipts  in  1800 _-  31 

Passenger  receipts  on  Pennsylvania 

in  1834 66 

Passenger  receipts  in  New  England 

and  New  York  in  1851 70 

Passenger  receipts  on  the  Erie  1868- 

1875 156 

Passenger  receipts  1888 161 

Passenger  receipts  1905 98 

Passenger  receipts  1893  and  1894...  166 

Pennsylvania,  early  rates  on 66 

Pennsylvania     (Columbia    &   Phila- 
delphia), initial  cost  of 64 

Pennsylvania     (Columbia   &    Phila- 
delphia), rates  under  charter 37 

Pennsylvania,  first  locomotive  used 

on  (Illustration) 65 

Pennsylvania,  growth  of  traffic  on__  95 
Pennsylvania   mcome   expended  on 

improvements 96 

Philadelphia      to      Columbia,      first 

charter —  36 

Philadelphia  and  Columbia,  cost  of.  .  64 
Philadelphia    and    Reading,    initial 

cost  of 66 

Pioneer  railways  of  America 34 

Population  of  United  States  in  1830  38 
Population, density  in  United  States 

1830-1906 129 

Population,  density  in  Belgium 107 

Population,  density  in  France 107 

Population,  density  in  Germany 105 

Population,  density  in  Great  Britain  102 

Population,  density  in  Japan ._  107 

Population,  increase  in  seven  West- 
ern states,  1870-1890 _  86 

Postal  cars,  cost  of  early  and  modern     73,  124 

Postal  cars,  modern  (illustration) 124,  125 

Present  capitalization 47 

Present  cost  of  road  and  equipment.  88 

Price  paid  by  Japan  for  private  roads  110 

Profits,  undivided  reinvested 21 

Profits  limited  to  25  per  cent  in  one 

early  charter 69 

Property,  value  of  all  in  the  United 

States 144 

Property,  assessed  value  for  taxation 

by  states. _- .--.--r ^^^ 

Racine,   Janesville  and   Mississippi, 

original  cost  of 77 

Rails,  first  laid  on  wooden  stringers.  37 

Rails,  early  cost  of ...69,71,72,73,82 

Rails,  steel  first  introduced  and  cost  83 

Rates,  charter  on  Pennsylvania 37 

Rates,    charter    on    Cleveland    and 

Pittsburgh. 72 

Rates,    reasonable,    early    directors 

judges  of. 74 

Rates,  valuation  does  not  control 3 

Reasons  for  valuation 6 

Receiverships,  Atchison,  Topeka  and 

Sante  Fe 167 

Receiverships,  Baltimore  and  Ohio.  .  168 

Receiverships,  effect  on  railways 151,  171 

Receiverships,  Erie 155,  169 

Receiverships  of  1873 84,  154 

Receiverships  of  1884 158 

Receiverships  of  1893 61,  160 

Receiverships  table  1 884- 1 899 1 64 

Regulation,  Judge  Cooley  on  object 

of .---.---.- --  5 

Relation  of  capitalization  and  rates. 

Chairman  Knapp  on 6 

Reproduction,  cost  of 10,114 

Reproduction  of  equipment,  cost  of  123 
Renewals  in  New  England,  an  early 

instance  of 71 

Returns,    small,  on  railway   invest- 
ments  173 

Right  of  way,  of  early  roads,  donated  77 

Right  of  way,  examples  of  cost 133 

Right  of  way,  present  value  of 127 

Right  of  way,  value  of  by  states 130 


Page. 
Right  of  way,  not  subject  to  depre- 
ciation..  71 

Sanborn,  Prof.  J.  B.,  on  land  grants.  75 
Service,    public,    of   railways    1890- 

1900 87 

Shareholders   entitled   to   capitalize 

profits 21 

Shareholders,  number  of 21 

Sources  of  capital __ 74,  77 

Southern  roads  during  the  war 79 

Southern  roads,  cost  of  1845 68 

Speed  of  travel  in  1800 _  31 

Statistics  of  railways 161 

Steel  rails,  cost  of  when  first  intro- 
duced  83 

Steel  rails,  miles  of ,  in  1880 85 

Stephenson,    George,    effect    of    his 

inventions 33 

Stevens,  Colonel  John,  first  advocate 

of  steam  railroads  in  U.  S _  36 

Stocks  and  bonds,  difference  as  in- 
vestments  12 

Supreme  Court,  on  elements  in  rail- 
way valuation 5 

Taxation,  value  of  railways  as  shown 

in 11 

Taxation,  as  a  test  of  value 143 

Taxation,  assessed  value  of  all  prop- 
erty for  purposes  of 144 

Taxation,  assessed  value  of  railway 

property  for 146 

Team  haul,  cost  of  per  mile 38 

Terminal  rights,  value  of 115 

Terminal  right  of  way,  value  of.  131,  135,  136 

Texas,  intangible  assets  in 115 

Texas  railways,  value  of 8,   147 

Toledo,     Norwalk    and     Cleveland, 

original  cost  of 73 

"Tom     Thumb",      Peter      Cooper's 

engine  (Illustration) 35 

Track  elevation,  cost  of  in  Chicago.  _  57 
Track  elevation  in  Chicago  (Illustra- 
tion)  56,  57 

Traffic  as  a  measure  of  value 94 

Traffic,  growth  of,  on  Pennsylvania  95 
Traffic,  growth  of,  on  Camden  and 

Amboy 45 

Tramway,  cost  of  first 37 

Transcontinental     line,      completed 

1869 43 

Transportation,  cost  of,  in  1800 31 

Travel  by  railway,  in  1834 40 

Turnpikes,  cost  of. 38 

Typical    construction,    examples    of 

cost  of 117,  118 

Union  Pacific,  initial  cost  of 81 

Union     Pacific,     conditions     under 

which  it  was  built. 82 

Unearned  increment,  none  in  value 

of  railways. 137 

Valuation     of     railways,     elements 

entering  into 5,'8 

Valuation    of    railways    cannot    be 

based  on  earnings ,  8 

Valuation  of  railways,  commercial..     11,  138 

Valuation  of  railways,  market 141 

Valuation  of  railways  as  shown  by 

taxation 143 

Valuation  of  railways  in  Texas 8,  146 

Water  in  railway  capital  defined 17 

Wealth  of  the  United  States  in  1800  31 

Wealth,  the  national,  1906 144 

Webster,   Daniel,   on  journey  from 
Washington     to     Washington, 

D.C 32 

Wellington,   A.  M.,  on  what  stock 

represents 20 

Western  states,  railway  increase  in, 

1870-1890 86 

Western  roads,  estimates  of  cost .  72 

Wisconsin  Commission  on  expendi- 
tures for  improvements 97 

Wisconsin,  wealth  of,  1830-1906.  .  ,  .  136 


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